Alaska Air Group Reports 2006 Full Year and Fourth Quarter Results

Alaska Air Group, Inc. today reported a full year net loss of $52.6 million, or $1.39 per share, compared to a net loss of $5.9 million, or $0.01 per diluted share, in 2005. The 2006 results...

Alaska Air Group, Inc. today reported a full year net loss of $52.6 million, or $1.39 per share, compared to a net loss of $5.9 million, or $0.01 per diluted share, in 2005. The 2006 results include charges related to the transition to an all-Boeing 737 fleet at Alaska Airlines and for voluntary severance programs related to new labor contracts, as well as mark-to-market fuel hedging adjustments. The 2005 results similarly include mark-to-market fuel hedge adjustments, voluntary severance program charges, a refund of Mexico navigation fees and the cumulative effect of a change in the company’s maintenance accounting policy. Excluding the impact of these items, 2006 net income would have been $137.7 million, or $3.45 per diluted share, compared to $55.0 million, or $1.78 per share in 2005.

The company reported a fourth quarter net loss of $11.6 million, or $0.29 per share, compared to a net loss of $33.0 million, or $1.15 per share, in the fourth quarter of 2005. Similar to the items noted for the full year, both the 2006 and 2005 quarterly results include mark-to-market fuel hedge accounting adjustments and restructuring-related items. Excluding the impact of these items, the company would have reported a fourth quarter net loss of $3.4 million, or $0.08 per share in 2006, compared to net income of $0.6 million, or $0.02 per share, in the fourth quarter of 2005.

"While unit revenue growth slowed somewhat during the fourth quarter, our full year adjusted earnings show steady improvement over the last five years," said Bill Ayer, the company’s chairman and chief executive officer. "This positive trend reflects the commitment of employees at Alaska and Horizon to achieve our customer, operational and financial goals. Alaska’s transition by the end of 2008 to an all-737 fleet will further our efforts to reduce costs while delivering a compelling customer value."

Because they achieved a number of financial and operational goals, Air Group employees have earned $36.8 million of incentive pay. This is the highest incentive payout in the company’s history. In addition, the marked improvement in operating cash flows allowed the company to contribute nearly $122 million to its defined benefit pension plans in 2006, bringing the funded percentage to nearly 80 percent based on the projected benefit obligation of the plans.

Alaska Airlines’ passenger traffic in the fourth quarter increased 3.4 percent on a capacity increase of 3.6 percent. Alaska’s load factor decreased 0.2 percentage points to 73.7 percent, compared to the same period in 2005. Alaska’s operating revenue per available seat mile (ASM) increased 3.9 percent, and its operating costs per ASM excluding fuel and adjustments related to restructuring activities increased 2.0 percent. Alaska’s pretax loss for the quarter was $12.1 million, compared to a pretax loss of $46.3 million in 2005. Excluding the restructuring adjustments and fuel-hedging items referenced above, Alaska’s pretax loss was $1.9 million for the quarter, compared to pre-tax income of $0.5 million in the fourth quarter of 2005.

Horizon Air’s passenger traffic in the fourth quarter increased 4.3 percent on a 5.2 percent capacity increase. Horizon’s load factor decreased by 0.7 percentage points to 73.0 percent. Horizon’s operating revenue per ASM increased 7.1 percent, and its operating costs per ASM excluding fuel increased 6.8 percent. Horizon’s pretax loss for the quarter was $3.5 million, compared to a pretax loss of $6.6 million in 2005. Excluding the fuel-hedging adjustments referenced above, Horizon’s pretax loss was $0.5 million for the quarter, compared to pretax income of $0.4 million in the fourth quarter of 2005.

Alaska Air Group had cash and short-term investments at Dec. 31, 2006, of approximately $1.0 billion, compared to $983 million at Dec. 31, 2005. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, improved to 72 percent as of Dec. 31, 2006.

A summary of financial and statistical data for Alaska Airlines and Horizon Air, as well as a reconciliation of the reported non-GAAP financial measures, can be found on pages 6 through 10.

A conference call regarding the fourth quarter 2006 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Jan. 25, 2007. 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 report 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 report contains forward-looking statements that are intended to be 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 or our future financial performance and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward- looking statements by terminology such as "forecast," "may," "will," "could," "should," "expect," "plan," "believe," "potential" or other similar words indicating future events or contingencies. Some of the things that could cause our actual results to differ from our expectations are: the competitive environment and other trends in our industry; changes in our operating costs including fuel, which can be volatile; our ability to meet our cost reduction goals; our inability to achieve or maintain profitability and fluctuations in our quarterly results; our significant indebtedness; the implementation of our growth strategy; the timing of the MD-80 fleet disposal, and the amounts of potential lease termination payments with lessors and sublease payments from sub lessees; compliance with our financial covenants; potential downgrades of our credit ratings and the availability of financing; the concentration of our revenue from a few key markets; general economic conditions, as well as economic conditions in the geographic regions we serve; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; labor disputes; our ability to attract and retain qualified personnel; an aircraft accident or incident; liability and other claims asserted against us; operational disruptions; increases in government fees and taxes; changes in laws and regulations; our reliance on automated systems; and our reliance on third-party vendors and partners. For a discussion of these and other risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended Dec. 31, 2005, and Item 1A of the Company’s Quarterly Report on Form 10-Q for the three and nine months ended Sept. 30, 2006. All of the forward- looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. 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 disclaim any obligation to publicly update or revise any forward-looking statements after the date of this press release 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 and sister carrier, Horizon Air, together serve 89 cities through an expansive network throughout Alaska, the Lower 48, Canada and Mexico. For reservations visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom.

                  ALASKA AIR GROUP, INC.

  CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  (In Millions Except Per Share Amounts)

                                          Three Months     Twelve Months
                                         Ended Dec. 31     Ended Dec. 31

                                         2006    2005      2006      2005
  Operating Revenues:
  Passenger                              $724.6  $666.8  $3,083.0  $2,728.7
  Freight and mail                         22.5    22.8      97.3      94.1
  Other - net                              43.2    41.0     154.1     152.5
  Total Operating Revenues                790.3   730.6   3,334.4   2,975.3

  Operating Expenses:
  Wages and benefits                      240.8   220.6     937.0     903.6
  Variable incentive pay                   12.7     9.5      36.8      20.0
  Aircraft fuel, including hedging gains
   and losses                             219.8   221.5     873.5     548.9
  Aircraft maintenance                     62.1    53.9     230.7     228.5
  Aircraft rent                            43.6    47.0     180.2     187.0
  Landing fees and other rentals           51.6    50.5     204.0     202.7
  Contracted services                      38.9    36.2     153.2     132.4
  Selling expenses                         36.7    39.6     169.3     163.4
  Depreciation and amortization            43.4    37.6     157.5     143.4
  Food and beverage service                12.9    13.4      51.2      51.3
  Other                                    53.6    51.6     214.0     207.2
  Fleet transition costs                     -       -      189.5        -
  Restructuring charges and adjustments    (7.6)   (0.3)     24.8      20.4
  Total Operating Expenses                808.5   781.1   3,421.7   2,808.8
  Operating Income (Loss)                 (18.2)  (50.5)    (87.3)    166.5

  Nonoperating Income (Expense):
  Interest income                          14.9     9.3      54.3      30.9
  Interest expense                        (20.4)  (17.5)    (78.0)    (63.0)
  Interest capitalized                      7.1     4.0      24.7       8.9
  Other - net                                -     (1.6)     (1.5)     (6.1)
                                            1.6    (5.8)     (0.5)    (29.3)
  Income (loss) before income tax and
   accounting change                      (16.6)  (56.3)    (87.8)    137.2
  Income tax expense (benefit)             (5.0)  (23.3)    (35.2)     52.7
  Income (loss) before accounting change $(11.6) $(33.0)   $(52.6)    $84.5
  Cumulative effect of accounting
   change, net of tax                        -       -         -      (90.4)
  Net Loss                               $(11.6) $(33.0)   $(52.6)    $(5.9)
  Basic Earnings (Loss) Per Share:
    Income (loss) before accounting
     change                              $(0.29) $(1.15)   $(1.39)    $3.06
    Cumulative effect of accounting
     change                                   NA     NA         NA    (3.27)
    Net Loss Per Share                   $(0.29) $(1.15)   $(1.39)   $(0.21)
  Diluted Earnings (Loss) Per Share:
    Income (loss) before accounting
     change                              $(0.29) $(1.15)   $(1.39)    $2.65
    Cumulative effect of accounting
     change                                   NA     NA        NA     (2.66)
    Net Loss Per Share                   $(0.29) $(1.15)   $(1.39)   $(0.01)
  Shares Used for Computation:
  Basic                                  40.214  28.629    37.939    27.609
  Diluted                                40.214  28.629    37.939    33.917


                           Alaska Air Group, Inc.

  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

                                             December 31,      December 31,
  (In Millions)                                     2006              2005

  Cash and marketable securities                  $1,014              $983

  Total current assets                            $1,572            $1,540
  Property and equipment-net                       2,359             2,032
  Other assets                                       174               220
  Total assets                                    $4,105            $3,792

  Current liabilities                             $1,307            $1,165
  Long-term debt                                   1,032               969
  Other liabilities and credits                      881               830
  Shareholders' equity                               885               828
  Total liabilities and shareholders' equity      $4,105            $3,792


    Alaska Airlines Financial and Statistical Data

                           Three Months Ended         Twelve Months Ended
                              December 31,                December 31,

  Financial Data
  (in millions):         2006    2005   % Change     2006      2005 % Change
  Operating Revenues:
  Passenger            $570.6  $526.4       8.4  $2,453.1  $2,183.0    12.4
  Freight and mail       21.6    21.9      (1.4)     93.4      90.3     3.4
  Other - net            40.0    38.9       2.8     146.0     142.8     2.2
  Total Operating
   Revenues             632.2   587.2       7.7   2,692.5   2,416.1    11.4

  Operating Expenses:
  Wages and benefits    190.4   173.4       9.8     743.3     722.1     2.9
  Variable incentive
   pay                   10.4     7.8      33.3      27.7      15.3    81.0
  Aircraft fuel,
   including hedging
   gains and losses     189.8   192.4      (1.4)    757.0     476.0    59.0
  Aircraft maintenance   38.2    41.7      (8.4)    156.8     185.2   (15.3)
  Aircraft rent          26.3    29.6     (11.1)    110.9     116.8    (5.1)
  Landing fees and
   other rentals         40.3    39.0       3.3     158.2     156.2     1.3
  Contracted services    33.4    32.9       1.5     131.8     119.9     9.9
  Selling expenses       31.5    30.4       3.6     141.5     132.6     6.7
  Depreciation and
   amortization          38.2    32.5      17.5     137.8     125.4     9.9
  Food and beverage
   service               12.2    12.8      (4.7)     48.3      48.8    (1.0)
  Other                  42.7    38.7      10.3     161.1     157.6     2.2
  Fleet transition
   costs                   -       -          NM    189.5        -        NM
  Restructuring
   charges and
   adjustments           (7.6)   (0.3)        NM     24.8      20.4       NM
  Total Operating
   Expenses             645.8   630.9       2.4   2,788.7   2,276.3    22.5

  Operating Income
   (Loss)               (13.6)  (43.7)        NM    (96.2)    139.8       NM

  Interest income        15.1     9.4                56.3      32.5
  Interest expense      (19.8)  (14.3)              (73.3)    (51.2)
  Interest capitalized    6.0     3.6                21.5       8.1
  Other - net             0.2    (1.3)               (0.5)     (5.0)
                          1.5    (2.6)                4.0     (15.6)

  Income (Loss) Before
   Income Tax and
   Accounting Change   $(12.1) $(46.3)        NM   $(92.2)   $124.2       NM

  Operating
   Statistics:
  Revenue passengers
   (000)                4,107   4,043       1.6    17,165    16,759     2.4
  RPMs (000,000)
   "traffic"            4,243   4,104       3.4    17,822    16,915     5.4
  ASMs (000,000)
   "capacity"           5,755   5,556       3.6    23,278    22,292     4.4
  Passenger load
   factor               73.7%   73.9%  (0.2)pts     76.6%     75.9%  0.7pts
  Yield per passenger
   mile (in cents)      13.45   12.83       4.8     13.76     12.91     6.7
  Operating revenue
   per ASM (in cents)   10.99   10.57       3.9     11.57     10.84     6.7
  Operating expenses
   per ASM
  (in cents) (a)        11.22   11.36      (1.2)    11.98     10.21    17.3
  Operating expense
   per ASM excluding
   fuel, fleet
   transition costs,
   restructuring
   charges and
   adjustments, and
   navigation fee refund
   (in cents) (a)        8.06    7.90       2.0      7.81      8.01    (2.5)
  GAAP fuel cost per
   gallon (a)           $2.18   $2.24      (2.7)    $2.14     $1.37    56.2
  Economic fuel cost
   per gallon (a)       $1.98   $1.69      17.2     $1.92     $1.53    25.5
  Fuel gallons
   (000,000)             87.1    85.7       1.6     354.3     346.4     2.3
  Average number of
   full-time
   equivalent
   employees            9,485   8,937       6.1     9,322     9,065     2.8
  Aircraft utilization
   (blk hrs/day)         10.6    10.8      (1.9)     11.0      10.8     1.9
  Average aircraft
   stage length
   (miles)                914     905       1.0       919       898     2.3
  Operating fleet at
   period-end             114     110       3.6       114       110     3.6

  NM = Not Meaningful

  (a) See Note A.



      Horizon Air Financial and Statistical Data

                              Three Months Ended         Twelve Months Ended
                                December 31,                December 31,

  Financial Data
   (in millions):           2006    2005   % Change   2006    2005 % Change
  Operating Revenues:
  Passenger                $155.0  $138.2      12.2  $633.1  $544.0    16.4
  Freight and mail            0.9     0.9       0.0     3.9     3.8     2.6
  Other - net                 2.9     1.8      61.1     7.0     8.6   (18.6)
  Total Operating Revenues  158.8   140.9      12.7   644.0   556.4    15.7

  Operating Expenses:
  Wages and benefits         49.0    45.1       8.6   189.3   173.7     9.0
  Variable incentive pay      2.3     1.7      35.3     9.1     4.7    93.6
  Aircraft fuel, including
   hedging gains and
   losses                    30.0    29.1       3.1   116.5    72.9    59.8
  Aircraft maintenance       23.9    12.2      95.9    73.9    43.3    70.7
  Aircraft rent              17.3    17.4      (0.6)   69.3    70.2    (1.3)
  Landing fees and other
   rentals                   11.6    12.0      (3.3)   46.9    47.7    (1.7)
  Contracted services         6.9     6.1      13.1    27.0    23.8    13.4
  Selling expenses            6.3     7.0     (10.0)   31.5    29.1     8.2
  Depreciation and
   amortization               4.9     4.8       2.1    18.5    16.8    10.1
  Food and beverage
   service                    0.7     0.6      16.7     2.9     2.5    16.0
  Other                       9.9    11.2     (11.6)   46.9    42.2    11.1
  Total Operating Expenses  162.8   147.2      10.6   631.8   526.9    19.9

  Operating Income (Loss)    (4.0)   (6.3)        NM   12.2    29.5       NM

  Interest income             1.0     0.6               3.7     1.6
  Interest expense           (1.6)   (1.2)             (7.4)   (5.5)
  Interest capitalized        1.1     0.4               3.2     0.8
  Other - net                  -     (0.1)               -       -
                              0.5    (0.3)             (0.5)   (3.1)

  Income (Loss) Before
   Income Tax and
   Accounting Change        $(3.5)  $(6.6)        NM  $11.7   $26.4       NM

  Operating Statistics:
  Revenue passengers (000)  1,689   1,613       4.7   6,860   6,481     5.8
  RPMs (000,000) "traffic"    659     632       4.3   2,691   2,475     8.7
  ASMs (000,000)
   "capacity"                 903     858       5.2   3,632   3,400     6.8
  Passenger load factor     73.0%   73.7%  (0.7)pts   74.1%   72.8%  1.3pts
  Yield per passenger mile
   (in cents)               23.52   21.87       7.6   23.53   21.98     7.0
  Operating revenue per
   ASM (in cents)           17.59   16.42       7.1   17.73   16.36     8.4
  Operating expenses per
   ASM (in cents) (a)       18.03   17.16       5.1   17.40   15.50    12.2
  Operating expense per
   ASM excluding fuel
   (in cents) (a)           14.71   13.76       6.8   14.19   13.35     6.3

  GAAP fuel cost per
   gallon (a)               $2.19   $2.29      (4.4)  $2.14   $1.41    51.8
  Economic fuel cost per
   gallon (a)               $1.98   $1.74      13.8   $1.93   $1.58    22.2
  Fuel gallons (000,000)     13.7    12.7       7.9    54.3    51.3     5.8
  Average number of full-
   time equivalent
   employees                3,670   3,537       3.8   3,611   3,456     4.5
  Aircraft utilization
   (blk hrs/day)              8.6     8.7      (1.1)    8.8     8.7     1.1
  Operating fleet at
   period-end                  69      65       6.2      69      65     6.2

  NM = Not Meaningful

  (a) See Note A.


  Note A:

Pursuant to Item 10 of Regulation S-K, 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. The non-GAAP financial measures provide management the ability to measure and monitor performance both with and without the cost of aircraft fuel (including the gains and losses associated with our fuel hedging program where appropriate), fleet transition costs, restructuring charges and adjustments, and a 2005 navigation fee refund. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond our control and we record changes in the fair value of our hedge portfolio in our income statement, it is our view that the measurement and monitoring of performance without fuel is important. In addition, we believe the disclosure of financial performance without fleet transition costs, restructuring charges, and the navigation fee refund is useful to investors. Finally, these non-GAAP financial measures are also more comparable to financial measures reported to the Department of Transportation by other major network airlines.

The following tables reconcile our non-GAAP financial measures to the most directly comparable GAAP financial measures for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:

  Alaska Airlines, Inc.:
                                      Three Months Ended Twelve Months Ended
  ($ in millions)                         December 31,        December 31,

  Unit cost reconciliations:               2006    2005      2006      2005
  Operating expenses                     $645.8  $630.9  $2,788.7  $2,276.3
  ASMs (000,000)                          5,755   5,556    23,278    22,292
  Operating expenses per ASM
   (in cents)                             11.22   11.36     11.98     10.21

  Operating expenses                     $645.8  $630.9  $2,788.7  $2,276.3
  Less: aircraft fuel                    (189.8) (192.4)   (757.0)   (476.0)
  Less: fleet transition costs               -       -     (189.5)       -
  Less: restructuring charges and
   adjustments                              7.6     0.3     (24.8)    (20.4)
  Add: navigation fee refund                 -       -         -        4.7
  Operating expenses excluding fuel,
   fleet transition costs, restructuring
   charges and adjustments, and the
   2005 navigation fee refund            $463.6  $438.8  $1,817.4  $1,784.6
  ASMs (000,000)                          5,755   5,556    23,278    22,292
  Operating expenses per ASM excluding
   fuel, fleet transition costs, the
   navigation fee refund, and
   restructuring charges and adjustments
   (in cents)                              8.06    7.90      7.81      8.01

  Reconciliation to GAAP income (loss)
   before taxes and accounting change:
  Income (loss) before taxes and
   accounting change, excluding mark-to-market
   hedging gains (losses), fleet
   transition costs, restructuring
   charges and adjustments, and the 2005
   navigation fee refund                  $(1.9)   $0.5    $200.5     $85.8
  Mark-to-market hedging gains (losses)
   included in aircraft fuel              (17.8)  (47.1)    (78.4)     53.1
  Less: fleet transition costs               -       -     (189.5)       -
  Less: restructuring charges and
   adjustments                              7.6     0.3     (24.8)    (20.4)
  Add: navigation fee refund and related
   interest received                         -       -         -        5.7
  GAAP income (loss) before taxes and
   accounting change as reported         $(12.1) $(46.3)   $(92.2)   $124.2

  Aircraft fuel reconciliations:*
  ($ in millions except per gallon amounts)
                                           Three Months Ended December 31,
                                              2006              2005
                                                Cost/Gal            Cost/Gal
  Raw or "into-plane" fuel cost          $180.0   $2.07    $172.7     $2.02
  Less: gains on settled hedges            (8.0)  (0.09)    (27.4)    (0.33)
  Economic fuel expense*                 $172.0   $1.98    $145.3     $1.69
  Add: mark-to-market losses related to
   hedges that settle in future periods,
   including and the reclassification of
    previously recorded mark-to-market
    gains on settled hedges                17.8    0.20      47.1      0.55
  GAAP fuel expense*                     $189.8   $2.18    $192.4     $2.24
  Fuel gallons (000,000)                   87.1              85.7



                                          Twelve Months Ended December 31,
                                              2006               2005
                                                Cost/Gal            Cost/Gal
  Raw or "into-plane" fuel cost          $765.6   $2.16    $637.9     $1.84
  Less: gains on settled hedges           (87.0)  (0.24)   (108.8)    (0.31)
  Economic fuel expense*                 $678.6   $1.92    $529.1     $1.53
  Mark-to-market net (gains) losses
   related to hedges that settle in
   future periods, including the
    reclassification of previously
    recorded mark-to-market gains on
    settled hedges                         78.4    0.22     (53.1)    (0.16)
  GAAP fuel expense*                     $757.0   $2.14    $476.0     $1.37
  Fuel gallons (000,000)                  354.3             346.4


  * Beginning in the first quarter of 2006, the Company records all fuel
    hedging activity, including mark-to-market gains and losses, in aircraft
    fuel expense.  Prior year amounts have been reclassified for
    consistency.


   Horizon Air Industries, Inc.
                                      Three Months Ended Twelve Months Ended
  ($ in millions)                         December 31,        December 31,

  Unit cost reconciliations:               2006     2005     2006     2005
  Operating expenses                     $162.8   $147.2   $631.8   $526.9
  ASMs (000,000)                            903      858    3,632    3,400
  Operating expenses per ASM
   (in cents)                             18.03    17.16    17.40    15.50

  Operating expenses                     $162.8   $147.2   $631.8   $526.9
  Less: aircraft fuel                     (30.0)   (29.1)  (116.5)   (72.9)
  Operating expenses excluding fuel      $132.8   $118.1   $515.3   $454.0
  ASMs (000,000)                            903      858    3,632    3,400
  Operating expenses per ASM excluding
   fuel (in cents)                        14.71    13.76    14.19    13.35

  Reconciliation to GAAP income (loss)
   before taxes and accounting change:
  Income before taxes and accounting
   change, excluding mark-to-market
  hedging gains (losses)                  $(0.5)    $0.4    $23.2    $17.8
  Mark-to-market hedging gains (losses)
   included in aircraft fuel               (3.0)    (7.0)   (11.5)     8.6
  GAAP income (loss) before taxes and
   accounting change as reported          $(3.5)   $(6.6)   $11.7    $26.4

  Aircraft fuel reconciliations:*
  ($ in millions except per gallon amounts)
                                           Three Months Ended December 31,
                                               2006              2005
                                                 Cost/Gal          Cost/Gal
  Raw or "into-plane" fuel cost           $28.3    $2.07    $26.1    $2.06
  Less: gains on settled hedges            (1.3)   (0.09)    (4.0)   (0.32)
  Economic fuel expense*                  $27.0    $1.98    $22.1    $1.74
  Add: mark-to-market net losses
   related to hedges that settle in
   future periods,including the
   reclassification of previously
   recorded mark-to-market
   gains on settled hedges                  3.0     0.21      7.0     0.55
  GAAP fuel expense*                      $30.0    $2.19    $29.1    $2.29
  Fuel gallons (000,000)                   13.7              12.7


                                         Twelve Months Ended December 31,
                                               2006             2005
                                                 Cost/Gal          Cost/Gal
  Raw or "into-plane" fuel cost          $119.1    $2.19    $97.7    $1.90
  Less: gains on settled hedges           (14.1)   (0.26)   (16.2)   (0.32)
  Economic fuel expense*                 $105.0    $1.93    $81.5    $1.58
  Mark-to-market net (gains) losses
   related to hedges that settle in
   future periods, including the
    reclassification of previously
    recorded mark-to-market gains on
    settled hedges                         11.5     0.21     (8.6)   (0.17)
  GAAP fuel expense*                     $116.5    $2.14    $72.9    $1.41
  Fuel gallons (000,000)                   54.3              51.3

  * Beginning in the first quarter of 2006, the Company records all fuel
    hedging activity, including mark-to-market gains and losses, in aircraft
    fuel expense.  Prior year amounts have been reclassified for
    consistency.


  Air Group Net Income (Loss) and EPS Reconciliation:

The following table summarizes Alaska Air Group, Inc.’s net income (loss) and earnings (loss) per share during 2006 and 2005 excluding the cumulative effect of the accounting change, mark-to-market hedging gains (losses) and related reclassifications, fleet transition costs, restructuring charges and adjustments, and the 2005 navigation refund, as reported in accordance with GAAP (in millions except per share amounts):

                                         Three Months Ended December 31,
                                              2006              2005
                                                 Diluted           Diluted
                                        Dollars    EPS    Dollars    EPS
  Net income (loss) and diluted EPS
   excluding mark-to-market hedging
   gains (losses), fleet transition
   costs, restructuring charges and
   adjustments, and the 2005
   navigation fee refund*                 $(3.4)  $(0.08)    $0.6    $0.02
  Mark-to-market hedging gains
   (losses), net of tax                   (13.0)   (0.33)   (33.8)   (1.18)
  Fleet transition costs, net of tax         -        -        -       -
  Restructuring charges and
   adjustments, net of tax                  4.8     0.12      0.2     0.01
  Navigation fee refund, net of tax          -        -        -       -
  Reported GAAP amounts                  $(11.6)  $(0.29)  $(33.0)  $(1.15)

                                         Twelve Months Ended December 31,
                                              2006              2005
                                                 Diluted           Diluted
                                        Dollars    EPS    Dollars    EPS
  Net income and diluted EPS excluding
   the cumulative effect of the
   accounting change, mark-to-market
   hedging gains (losses), fleet
   transition costs, restructuring
   charges and adjustments, and the
   2005 navigation fee refund*           $137.7    $3.45    $55.0    $1.78
  Effect of dilutive shares and
   interest on convertible bonds *           NA     0.17        NA      NA
  Cumulative effect of accounting
   change, net of tax                        -        -     (90.4)   (2.66)
  Mark-to-market hedging gains
   (losses), net of tax                   (56.3)   (1.48)    38.6     1.14
  Fleet transition costs, net of tax     (118.5)   (3.12)      -       -
  Restructuring charges and
   adjustments, net of tax                (15.5)   (0.41)   (12.7)   (0.37)
  Navigation fee refund, net of tax          -        -       3.6     0.10
  Reported GAAP amounts                  $(52.6)  $(1.39)   $(5.9)  $(0.01)

*Diluted earnings per share for the twelve months ended December 31, 2006, excluding the impact of the mark-to-market losses on fuel hedges, fleet transition costs, and restructuring charges and adjustments has been calculated using the dilutive weighted-average number of shares oustanding of 40.386 million.

In order to reconcile the diluted earnings per share on an adjusted basis to the GAAP loss per share for twelve months ended December 31, 2006, the table above includes $0.17 per share, which represents the impact of the additional shares that were used in the adjusted diluted earnings per share. Additionally, $1.6 million of interest, net of tax, on the convertible senior notes that were outstanding during the first quarter of the year was added back to earnings for the twelve months ended December 31, 2006 in order to derive the diluted earnings per share on an adjusted basis.

The per share impact of the mark-to-market losses on fuel hedges, fleet transition costs, and restructuring and impairment ch

The following table summarizes Alaska Air Group, Inc.’s basic and diluted per share calculations for income (loss) before the accounting change and net loss (in millions except per share amounts):

                                       Three Months Ended  Twelve Months
                                          December 31,   Ended December 31,
                                         2006     2005       2006     2005

   Basic Earnings (Loss) Per Share:
   Income (loss) before accounting
    change                               $(11.6)  $(33.0)  $(52.6)   $84.5
   Weighted average shares outstanding   40.214   28.629   37.939   27.609
     Income (loss) per share before
      accounting change                  $(0.29)  $(1.15)  $(1.39)   $3.06

   Cumulative effect of accounting
    change, net of tax                        NA       NA       NA  $(90.4)
   Weighted average shares outstanding        NA       NA       NA  27.609
     Per share cumulative effect of
      accounting change                       NA       NA       NA  $(3.27)

   Net loss                              $(11.6)  $(33.0)  $(52.6)   $(5.9)
   Weighted average shares outstanding   40.214   28.629   37.939   27.609
     Net loss per share                  $(0.29)  $(1.15)  $(1.39)  $(0.21)


   Diluted Earnings (Loss) Per Share:
   Income (loss) before accounting
    change                               $(11.6)  $(33.0)  $(52.6)   $84.5
   Interest on convertible notes, net
    of tax                                   NA       NA       NA      5.5
   Income (loss) before accounting
    change for diluted calculation       $(11.6)  $(33.0)  $(52.6)   $90.0
   Weighted average shares outstanding   40.214   28.629   37.939   33.917
     Income (loss) per share before
      accounting change                  $(0.29)  $(1.15)  $(1.39)   $2.65

   Cumulative effect of accounting
    change, net of tax                        NA       NA       NA  $(90.4)
   Weighted average shares outstanding        NA       NA       NA  33.917
     Per share cumulative effect of
      accounting change                       NA       NA       NA  $(2.66)

   Net loss                              $(11.6)  $(33.0)  $(52.6)   $(5.9)
   Interest on convertible notes, net
    of tax                                   NA       NA       NA      5.5
   Net loss for diluted calculation      $(11.6)  $(33.0)  $(52.6)   $(0.4)
   Weighted average shares outstanding   40.214   28.629   37.939   33.917
     Net loss per share                  $(0.29)  $(1.15)  $(1.39)  $(0.01)


  Forecasted Financial Measures

During our quarterly earnings conference call, we expect to discuss forward-looking forecasted unit cost information for 2007. This forecasted unit cost information includes non-GAAP unit cost estimates which are summarized in the following table together with the most directly comparable GAAP unit cost for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:

                                         Alaska Airlines

                                                          Forecast of total
                     Forecast of cost        Forecast        operating cost
                        per available         of fuel         per available
                           seat mile,        cost per         seat mile, as
                       excluding fuel       available         reported on a
                       and impairment       seat mile            GAAP basis
                      charges (cents)    (See Note 1)               (cents)

  First quarter 2007        8.0 - 8.1             2.7         10.7 - 10.8

  Full year 2007            7.5 - 7.6             2.9         10.4 - 10.5


                                        Horizon Air

                                                         Forecast of total
                          Forecast of        Forecast       operating cost
                             cost per         of fuel        per available
                            available        cost per        seat mile, as
                           seat mile,       available        reported on a
                       excluding fuel       seat mile           GAAP basis
                              (cents)    (See Note 1)              (cents)


  First quarter 2007             15.7             3.4                19.1

  Full year 2007                 14.2             3.5                17.7


Note 1: Our forecast of fuel cost is based on anticipated gallons consumed and estimated fuel cost per gallon. The estimate also includes the expected benefit from settled hedges, net of the reclassification of previously recognized mark-to-market hedge portfolio gains and losses. Given the volatility of fuel prices and the mark-to-market adjustments on our fuel hedge portfolio, readers should be cautioned that actual fuel expense could differ significantly from the forecast above.

Operating Fleet Plan

Giving consideration to the current fleet transition plan, the following table displays the currently anticipated fleet counts for Alaska and Horizon as of the end of each quarter in 2007 compared to the fleet count as of December 31, 2006:

                 31-Dec-06    31-Mar-07    30-Jun-07   30-Sep-07 31-Dec-07
  Alaska Airlines
  B737-200C           2            0            0           0           0
  B737-400F**         1            1            1           1           1
  B737-400C           0            2            4           4           4
  B737-400           39           37           35          35          35
  B737-700           22           20           20          20          20
  B737-800           15           20           22          25          29
  B737-900           12           12           12          12          12
  MD-80              23           21           20          17          15
  Total             114          113          114         114         116

  Horizon Air
  Q200               28           26           23          20          17
  Q400               20           26           32          33          33
  CRJ 700            21           21           20          20          20
  Total              69           73           75          73          70

FCMN Contact: maria.koenig@alaskaair.com

SOURCE: Alaska Air Group, Inc.

CONTACT: media, Amanda Tobin Bielawski, Media Relations Manager,
+1-206-392-5134, or investors/analysts, Shannon Alberts, Managing Director of
Investor Relations, +1-206-392-5218, both of Alaska Air Group

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