Alaska Air Group Reports Fourth Quarter and Full-Year Results

Alaska Air Group, Inc. today reported fourth quarter 2009 net income of $24.1 million, or $0.67 per diluted share, compared to a net loss of $75.2 million, or $2.08 per diluted share, in the...

Alaska Air Group, Inc. today reported fourth quarter 2009 net income of $24.1 million, or $0.67 per diluted share, compared to a net loss of $75.2 million, or $2.08 per diluted share, in the fourth quarter of 2008. Excluding mark-to-market fuel hedge gains of $31.7 million ($19.7 million after tax or $0.55 per diluted share), the company reported net income of $4.4 million, or $0.12 per diluted share, in the fourth quarter of 2009, compared to net income of $16.4 million, or $0.45 per diluted share, excluding special items in the fourth quarter of 2008.

The company reported full-year 2009 net income of $121.6 million, compared to a net loss of $135.9 million in 2008. Excluding the impact of the items noted in the table below, the company reported 2009 net income of $88.7 million, or $2.45 per diluted share, an $84.3 million improvement from the $4.4 million, or $0.12 per diluted share, in 2008.

"Our traffic and unit revenue performance, driven by positive network changes, outpaced the industry throughout the year. This performance, combined with lower fuel costs, placed Alaska Air Group’s profitability among the best in the industry for 2009," said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. "This marks our sixth consecutive year of profits on an adjusted basis."

Based on its 2009 profit and operational performance, the company will distribute a total of $76 million from its pay-for-performance incentive plans.

"Our employees’ ongoing commitment to operating reliably and providing exceptional customer service is fundamental to building a great company for the long term, and broad participation in a common gain-sharing plan helps align Alaska and Horizon employees around important performance goals," said Ayer. "I want to thank our people for their hard work and dedication, which contributed significantly to our 2009 results."

The following tables reconcile the company’s adjusted net income and earnings per diluted share (EPS) during the fourth quarters and full years of 2009 and 2008 to amounts as reported in accordance with GAAP (in millions except per-share amounts):

                                           Three months ended Dec. 31,
                                           ---------------------------
                                          2009                  2008
                                          ----                  ----
                                  Dollars  Diluted EPS  Dollars  Diluted EPS
                                  -------  -----------  -------  -----------
  Net income and diluted EPS,
   excluding items noted below        $4.4     $0.12    $16.4     $0.45
  Restructuring charges, net of tax    ---       ---     (5.8)    (0.16)
  Fleet transition costs -
   CRJ-700, net of tax                 ---       ---     (4.2)    (0.12)
  Adjustments to reflect the timing
   of gain or loss recognition
   resulting from mark-to-market
   fuel-hedge accounting, net of tax  19.7      0.55    (50.3)    (1.39)
  Realized losses on hedge
   portfolio restructuring,
   net of tax                          ---       ---    (31.3)    (0.86)
                                     -----     -----   ------    ------ 
  Reported GAAP net income (loss)    $24.1     $0.67   $(75.2)   $(2.08)





                                        Twelve months ended Dec. 31,
                                        ----------------------------
                                          2009                  2008
                                          ----                  ----
                                  Dollars  Diluted EPS  Dollars  Diluted EPS
                                  -------  -----------  -------  -----------
  Net income and diluted EPS,
   excluding items noted below       $88.7     $2.45      $4.4     $0.12
  Change in Mileage Plan terms,
   net of tax                          ---       ---      26.5      0.73
  New pilot contract transition
   costs, net of tax                 (22.3)    (0.62)      ---       ---
  Restructuring charges, net of tax    ---       ---      (8.1)    (0.22)
  Fleet transition costs
   - MD-80, net of tax                 ---       ---     (29.8)    (0.82)
  Fleet transition costs 
  - CRJ-700, net of tax                ---       ---      (8.4)    (0.23)
  Adjustments to reflect the timing
   of gain or loss recognition
   resulting from mark-to-market
   fuel-hedge accounting, net of tax  55.2      1.53     (89.2)    (2.46)
  Realized losses on hedge
   portfolio restructuring,
   net of tax                          ---       ---     (31.3)    (0.86)
                                    ------     -----   -------    ------
  Reported GAAP net income (loss)   $121.6     $3.36   $(135.9)   $(3.74)


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 in the accompanying tables. A glossary of financial terms can be found at the end of this release.

A conference call regarding the fourth quarter and full-year 2009 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Jan. 28, 2010. It can be accessed through the company’s Web site at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com/investors.

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

This news release contains 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, 2008 and revisions in Item 1A of the Company’s Quarterly Report on Form 10-Q for the period ended Sept. 30, 2009. Some of these risks include current economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations, and government fees and taxes. 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 and Horizon Air, subsidiaries of Alaska Air Group , together serve more than 90 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in the J.D. Power and Associates 2008 and 2009 North America Airline Satisfaction Studies(SM). For reservations, visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom.

Glossary of Financial Terms

ASM – Available seat miles or "capacity." Represents total seats available across the fleet multiplied by the number of miles flown.

RPM – Revenue passenger miles or "traffic." The number of those available seats that were filled with paying passengers. One passenger traveling one mile is one RPM.

RASM – Total operating revenue divided by ASMs. Operating revenue includes all passenger revenue, freight and mail, Mileage Plan and other ancillary revenue — commonly called "unit revenue" and represents the average total revenue for flying one seat one mile.

PRASM – Passenger revenue per ASM — commonly called "passenger unit revenue."

Yield – Passenger revenue per RPM. This represents the average revenue for flying one passenger one mile.

CASM – Total operating costs per ASM. This represents all operating expenses, including fuel and special items — commonly called "unit cost."

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 costs are largely out the company’s control.

Economic fuel – Best estimate of the cash cost of fuel, net of the impact of the company’s fuel-hedging program.

Mainline – Represents flying on Alaska jets and all associated revenue and costs.

Purchased capacity flying – Represents operations whereby Horizon and, to a much lesser extent, another small carrier in the state of Alaska fly certain routes for Alaska using Horizon’s or the other carrier’s fleets.

  Alaska Air Group, Inc.                                                   
                                                                           
  CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)                        
                                                                           
                                                                           
                                         Three Months       Twelve Months  
                                             Ended              Ended
                                          December 31,       December 31, 
  (in millions, except per share         -------------     --------------- 
   amounts)                               2009    2008      2009      2008 
                                          ----    ----      ----      ---- 
  Operating Revenues:                                                      
  Passenger                             $766.0  $763.8  $3,092.1  $3,355.8 
  Freight and mail                        23.6    23.2      95.9     103.6 
  Other - net                             56.5    40.1     211.8     160.9 
  Change in Mileage Plan terms               -       -         -      42.3 
                                           ---     ---       ---      ---- 
  Total Operating Revenues               846.1   827.1   3,399.8   3,662.6 
                                         -----   -----   -------   ------- 
                                                                           
  Operating Expenses:                                                      
  Wages and benefits                     248.8   232.5     988.1     943.7 
  Variable incentive pay                  23.8     6.4      76.0      21.4 
  Aircraft fuel, including hedging
   gains and losses                      172.5   358.8     658.1   1,398.4 
  Aircraft maintenance                    54.1    49.2     223.1     208.8 
  Aircraft rent                           38.3    37.0     153.7     163.1 
  Landing fees and other rentals          57.3    54.0     223.2     223.7 
  Contracted services                     38.0    37.8     150.6     166.1 
  Selling expenses                        34.5    26.8     131.8     147.1 
  Depreciation and amortization           56.9    51.7     219.2     204.6 
  Food and beverage service               13.4    11.7      50.1      50.9 
  Other                                   55.7    51.5     213.9     222.9 
  New pilot contract transition costs        -       -      35.8         - 
  Restructuring charges                      -     9.2         -      12.9 
  Fleet transition costs - MD-80             -       -         -      47.5 
  Fleet transition costs - CRJ-700           -     6.7         -      13.5 
  Fleet transition costs - Q200              -     0.5       8.8      10.2 
                                           ---     ---       ---      ---- 
  Total Operating Expenses               793.3   933.8   3,132.4   3,834.8 
                                         -----   -----   -------   ------- 
  Operating Income (Loss)                 52.8  (106.7)    267.4    (172.2)
                                          ----  ------     -----    ------ 
                                                                           
  Nonoperating Income (Expense):                                           
  Interest income                          8.2    10.9      32.6      42.4 
  Interest expense                       (22.7)  (28.0)   (100.5)   (102.3)
  Interest capitalized                     1.6     4.7       7.6      23.2 
  Other - net                              2.1    (0.9)     (4.2)     (4.3)
                                           ---    ----      ----      ---- 
                                         (10.8)  (13.3)    (64.5)    (41.0)
                                         -----   -----     -----     ----- 
  Income (loss) before income tax         42.0  (120.0)    202.9    (213.2)
  Income tax expense (benefit)            17.9   (44.8)     81.3     (77.3)
                                          ----   -----      ----     ----- 
  Net Income (Loss)                      $24.1  $(75.2)   $121.6   $(135.9)
                                         =====  ======    ======   ======= 
                                                                           
  Basic Earnings (Loss) Per Share:       $0.68  $(2.08)    $3.39    $(3.74)
  Diluted Earnings (Loss) Per Share:     $0.67  $(2.08)    $3.36    $(3.74)
  Shares Used for Computation:                                             
  Basic                                 35.323  36.225    35.815    36.343 
  Diluted                               35.844  36.225    36.154    36.343 



  Alaska Air Group, Inc.                                                  
                                                                          
  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)                       
                                                                          
                                                                          
  (in millions)                        December 31, 2009 December 31, 2008
                                       ----------------- -----------------
                                                                          
  Cash and marketable securities               $1,192            $1,077
                                               ======            ======
                                                                       
  Total current assets                          1,634             1,509
  Property and equipment-net                    3,168             3,168
  Other assets                                    183               159
                                                  ---               ---
  Total assets                                 $4,985            $4,836
                                               ======            ======
                                                                       
  Current liabilities                          $1,258            $1,361
  Long-term debt                                1,699             1,596
  Other liabilities and credits                 1,156             1,217
  Shareholders' equity                            872               662
                                                  ---               ---
  Total liabilities and shareholders' equity   $4,985            $4,836
                                               ======            ======
                                                                       
  Debt to Capitalization, adjusted                                     
   for operating leases                       76%:24%           81%:19%
                                               ======            ======
                                                                       
  Number of common shares outstanding          35.591            36.275
                                               ======            ======



  Air Group Net Income (Loss) and EPS Reconciliation:                      
  ---------------------------------------------------                      
                                                                           
  The following table reconciles Alaska Air Group, Inc.'s net income (loss)
  and amounts per share during 2009 and 2008 excluding certain noted items
  to the most directly related amounts as reported in accordance with GAAP
  (in millions except per share amounts): 
                                                                           
                                      Three Months Ended December 31,  
                                      -------------------------------  
                                         2009                 2008 
                                         ----                 ---- 
                                  Dollars Diluted EPS Dollars  Diluted EPS 
                                  ------- ----------- -------  ----------- 
  Net income and diluted EPS,                                              
   excluding the items noted
   below                             $4.4       $0.12   $16.4        $0.45 
  Restructuring charges, net of tax     -           -    (5.8)       (0.16)
  Fleet transition costs - CRJ-700,                                        
   net of tax                           -           -    (4.2)       (0.12)
  Adjustments to reflect the timing                                        
   of gain or loss recognition                                             
   resulting from mark-to-market                                          
   fuel-hedge accounting, net of                                         
   tax                               19.7        0.55   (50.3)       (1.39)
  Realized losses on hedge                                                 
   portfolio restructuring, net of                                         
   tax                                  -           -   (31.3)       (0.86)
                                      ---         ---   -----        ----- 
  Reported GAAP amounts             $24.1       $0.67  $(75.2)      $(2.08)
                                    =====       =====  ======       ====== 



                                                                             
                                      Twelve Months Ended December 31,   
                                      ---------------------------------  
                                         2009                 2008 
                                         ----                 ---- 
                                  Dollars  Diluted EPS  Dollars  Diluted EPS 
                                  -------  -----------  -------  ----------- 
  Net income and diluted EPS,                                                
   excluding the items noted below  $88.7       $2.45    $4.4        $0.12
  Change in Mileage Plan terms, net                                        
   of tax                               -           -    26.5         0.73 
  New pilot contract transition                                            
   costs, net of tax                (22.3)      (0.62)      -            - 
  Restructuring charges, net of tax     -           -    (8.1)       (0.22)
  Fleet transition costs - MD-80,                                          
   net of tax                           -           -   (29.8)       (0.82)
  Fleet transition costs - CRJ-700,                                        
   net of tax                           -           -    (8.4)       (0.23)
  Adjustments to reflect the timing                                        
   of gain or loss recognition                                             
   resulting from mark-to-market                                          
   fuel-hedge accounting, net of                                         
   tax                               55.2        1.53   (89.2)       (2.46)
  Realized losses on hedge                                                 
   portfolio restructuring, net of                                         
   tax                                  -           -   (31.3)       (0.86)
                                      ---         ---   -----        ----- 
  Reported GAAP amounts            $121.6       $3.36 $(135.9)      $(3.74)
                                   ======       ===== =======       ====== 
                                                                           
  Note 1:   Diluted EPS, excluding special items was calculated using 
            diluted weighted-average shares outstanding of 36.568 million
            and 36.657 million for the three and twelve months ended
            December 31, 2008, respectively.      
                                                                         
  Note 2:   Adjusted items are presented net of tax at our incremental tax
            rate of 37.8% for 2009 and 37.5% for 2008. 



  Alaska Airlines Financial and Statistical Data                 
                                                                 
                                     Three Months Ended December 31,
                                     -------------------------------
  Financial Data (in millions):         2009      2008  % Change 
                                        ----      ----  -------- 
  Operating Revenues:                                            
  Passenger                           $594.5    $602.5      (1.3)
  Freight and mail                      22.5      22.2       1.4 
  Other - net                           50.8      34.0      49.4 
  Change in Mileage Plan terms             -         -        NM 
                                         ---       ---           
  Total mainline operating revenues    667.8     658.7       1.4 
  Passenger - purchased capacity        77.0      66.9      15.1 
                                        ----      ----           
  Total Operating Revenues             744.8     725.6       2.6 
                                       -----     -----           
                                                                 
                                                                 
  Operating Expenses:                                            
  Wages and benefits                   197.7     183.8       7.6 
  Variable incentive pay                17.6       5.0     252.0 
  Aircraft fuel, including hedging                               
   gains and losses                    143.1     298.4     (52.0)
  Aircraft maintenance                  40.5      38.5       5.2 
  Aircraft rent                         27.2      23.8      14.3 
  Landing fees and other rentals        42.4      40.8       3.9 
  Contracted services                   30.3      29.7       2.0 
  Selling expenses                      27.9      20.4      36.8 
  Depreciation and amortization         45.9      42.7       7.5 
  Food and beverage service             12.8      11.2      14.3 
  Other                                 41.9      40.1       4.5 
  New pilot contract transition costs      -         -        NM 
  Restructuring charges                    -       9.2        NM 
  Fleet transition costs - MD-80           -         -        NM 
                                         ---       ---           
  Total mainline operating expenses    627.3     743.6     (15.6)
                                       -----     -----           
  Purchased capacity costs              75.2      66.9      12.4 
                                        ----      ----           
  Total Operating Expenses             702.5     810.5           
                                       -----     -----           
                                                                 
  Operating Income (Loss)               42.3     (84.9)       NM 
                                        ----     -----           
                                                                 
  Interest income                        9.4      13.1           
  Interest expense                     (20.6)    (25.0)          
  Interest capitalized                   1.6       4.1           
  Other - net                            2.5      (0.7)          
                                         ---      ----           
                                        (7.1)     (8.5)          
                                        ----      ----           
                                                                 
  Income (Loss) Before Income Tax      $35.2    $(93.4)          
                                       =====    ======           
                                                                 
  Mainline Operating Statistics:                                 
  Revenue passengers (000)             3,765     3,772      (0.2)
  RPMs (000,000) "traffic"             4,550     4,302       5.8 
  ASMs (000,000) "capacity"            5,675     5,590       1.5 
  Passenger load factor                 80.2%     77.0%      3.2pts   
  Yield per passenger mile (in cents)  13.07     14.01      (6.7)
  Operating revenue per ASM 
   "RASM" (in cents)                   11.77     11.78      (0.1)
  Change in Mileage Plan terms per                               
   ASM (in cents)                       0.00      0.00        NM 
                                        ----      ----           
  RASM excluding change in Mileage                               
   Plan terms (in cents)               11.77     11.78      (0.1)
  Passenger revenue per ASM (in cents) 10.48     10.78      (2.8)
  Operating expense per ASM (in cents) 11.05     13.30     (16.9)
  Operating expense per ASM                                      
   excluding fuel, new pilot                                     
   contract transition costs,                                   
   restructuring charges and                                     
   fleet transition costs
   (a) (in cents)                       8.53      7.80       9.4 
  GAAP fuel cost per gallon            $1.91     $3.95     (51.6)
  Economic fuel cost per gallon (b)    $2.26     $2.52     (10.3)
  Fuel gallons (000,000)                75.0      75.5      (0.7)
  Average number of full-time                                    
   equivalent employees                8,701     9,156      (5.0)
  Aircraft utilization (blk hrs/ day)    9.3      10.0      (7.0)
  Average aircraft stage length                                  
   (miles)                             1,058       995       6.3 
  Operating fleet at period-end          115       110       5 a/c 
                                                                 
  Purchased Capacity Operating Statistics:                       
  RPMs (000,000)                         276       227      21.6 
  ASMs (000,000)                         373       316      18.0 
  Passenger load factor                 74.0%     71.8%      2.2pts   
  Yield per passenger mile (in cents)  27.90     29.47      (5.3)
  Operating revenue per ASM (in cents) 20.64     21.17      (2.5)
  Operating expenses per ASM
   (in cents)                          20.16     21.17      (4.8)
                                                                 
                                                                 
                                                                 
                                                                 
                                         Twelve Months Ended     
                                            December 31,         
                                         -------------------     
  Financial Data (in millions):         2009      2008  % Change 
                                        ----      ----  -------- 
  Operating Revenues:                                            
  Passenger                         $2,438.8  $2,643.7      (7.8)
  Freight and mail                      91.5      99.3      (7.9)
  Other - net                          187.3     135.2      38.5 
  Change in Mileage Plan terms             -      42.3        NM 
                                         ---      ----           
  Total mainline operating revenues  2,717.6   2,920.5      (6.9)
  Passenger - purchased capacity       288.4     300.8      (4.1)
                                       -----     -----           
  Total Operating Revenues           3,006.0   3,221.3      (6.7)
                                     -------   -------           
                                                                 
                                                                 
  Operating Expenses:                                            
  Wages and benefits                   792.6     742.7       6.7 
  Variable incentive pay                61.6      15.8     289.9 
  Aircraft fuel, including hedging                               
   gains and losses                    549.0   1,162.4     (52.8)
  Aircraft maintenance                 169.9     150.6      12.8 
  Aircraft rent                        109.0     106.2       2.6 
  Landing fees and other rentals       166.8     167.7      (0.5)
  Contracted services                  118.9     130.2      (8.7)
  Selling expenses                     104.7     116.0      (9.7)
  Depreciation and amortization        178.5     165.9       7.6 
  Food and beverage service             47.7      48.3      (1.2)
  Other                                161.2     170.3      (5.3)
  New pilot contract transition                                  
   costs                                35.8         -        NM 
  Restructuring charges                    -      12.9        NM 
  Fleet transition costs - MD-80           -      47.5        NM 
                                         ---      ----           
  Total mainline operating expenses  2,495.7   3,036.5     (17.8)
                                     -------   -------           
  Purchased capacity costs             281.5     313.7     (10.3)
                                       -----     -----           
  Total Operating Expenses           2,777.2   3,350.2           
                                     -------   -------           
                                                                 
  Operating Income (Loss)              228.8    (128.9)       NM 
                                       -----    ------           
                                                                 
  Interest income                       38.6      51.3           
  Interest expense                     (88.1)    (92.5)          
  Interest capitalized                   7.3      20.2           
  Other - net                           (2.8)     (3.4)          
                                        ----      ----           
                                       (45.0)    (24.4)          
                                       -----     -----           
                                                                 
  Income (Loss) Before Income Tax     $183.8   $(153.3)          
                                      ======   =======           
                                                                 
  Mainline Operating Statistics:                                 
  Revenue passengers (000)            15,561    16,809      (7.4)
  RPMs (000,000) "traffic"            18,362    18,712      (1.9)
  ASMs (000,000) "capacity"           23,144    24,218      (4.4)
  Passenger load factor                 79.3%     77.3%      2.0pts   
  Yield per passenger mile (in cents)  13.28     14.13      (6.0)
  Operating revenue per ASM
   "RASM" (in cents)                   11.74     12.06      (2.7)
  Change in Mileage Plan terms per                               
   ASM (in cents)                       0.00      0.17        NM 
                                        ----      ----           
  RASM excluding change in Mileage                               
   Plan terms (in cents)               11.74     11.89      (1.3)
  Passenger revenue per ASM (in cents) 10.54     10.92      (3.5)
  Operating expense per ASM (in cents) 10.78     12.54     (14.0)
  Operating expense per ASM (in cents)                          
   excluding fuel, new pilot                                     
   contract transition costs,                                   
   restructuring charges and                                     
   fleet transition costs
   (a) (in cents)                       8.26      7.49      10.2 
  GAAP fuel cost per gallon            $1.81     $3.48     (48.0)
  Economic fuel cost per gallon (b)    $2.05     $3.00     (31.7)
  Fuel gallons (000,000)               304.9     333.8      (8.7)
  Average number of full-time                                    
   equivalent employees                8,915     9,628      (7.4)
  Aircraft utilization (blk hrs/day)     9.8      10.6      (7.5)
  Average aircraft stage length                                  
   (miles)                             1,034       979       5.6 
  Operating fleet at period-end          115       110       5 a/c 
                                                                 
  Purchased Capacity Operating Statistics:                       
  RPMs (000,000)                       1,053     1,100      (4.3)
  ASMs (000,000)                       1,431     1,469      (2.6)
  Passenger load factor                 73.6%     74.9%     (1.3)pts 
  Yield per passenger mile (in cents)  27.39     27.35       0.1 
  Operating revenue per ASM (in cents) 20.15     20.48      (1.6)
  Operating expenses per ASM
   (in cents)                          19.67     21.35      (7.9)
                                                                 
                                                                 
  NM = Not Meaningful                                            
                                                                 
  (a) See page 10 for a reconciliation of these non-GAAP         
      measures and a discussion about why these measures may be     
      important to investors.                                       
  (b) See page 12 for a reconciliation of economic fuel cost.    



  Horizon Air Financial and Statistical Data                      
                                                                  
                                            Three Months Ended    
                                                December 31,      
                                            ------------------    
  Financial Data (in millions):            2009    2008  % Change 
                                           ----    ----  -------- 
  Operating Revenues:                                             
  Passenger - brand flying                $98.2   $98.5      (0.3)
  Passenger - Alaska capacity purchase                            
   arrangement                             70.5    62.5      12.8 
                                           ----    ----           
     Total passenger revenue              168.7   161.0       4.8 
  Freight and mail                          0.7     0.6      16.7 
  Other - net                               2.1     2.1         - 
                                            ---     ---           
  Total Operating Revenues                171.5   163.7       4.8 
                                          -----   -----           
                                                                  
  Operating Expenses:                                             
  Wages and benefits                       48.2    46.9       2.8 
  Variable incentive pay                    6.2     1.4     342.9 
  Aircraft fuel, including hedging                                
   gains and losses                        29.4    60.4     (51.3)
  Aircraft maintenance                     13.6    10.7      27.1 
  Aircraft rent                            11.1    13.2     (15.9)
  Landing fees and other rentals           15.3    13.6      12.5 
  Contracted services                       8.3     7.1      16.9 
  Selling expenses                          6.6     6.4       3.1 
  Depreciation and amortization            10.7     8.7      23.0 
  Food and beverage service                 0.6     0.5      20.0 
  Other                                    10.4     9.0      15.6 
  Fleet transition costs - CRJ-700            -     6.7        NM 
  Fleet transition costs - Q200               -     0.5        NM 
                                            ---     ---           
  Total Operating Expenses                160.4   185.1     (13.3)
                                          -----   -----           
                                                                  
  Operating Income (Loss)                  11.1   (21.4)       NM 
                                           ----   -----           
                                                                  
  Interest income                           0.5     1.6           
  Interest expense                         (3.7)   (6.7)          
  Interest capitalized                        -     0.7           
  Other - net                              (0.2)    0.1           
                                           ----     ---           
                                           (3.4)   (4.3)          
                                           ----    ----           
                                                                  
  Income (Loss) Before Income Tax          $7.7  $(25.7)          
                                           ====  ======           
                                                                  
  Combined Operating Statistics: (a)                              
  Revenue passengers (000)                1,704   1,636       4.2 
  RPMs (000,000) "traffic"                  609     561       8.6 
  ASMs (000,000) "capacity"                 822     786       4.6 
  Passenger load factor                    74.1%   71.4%      2.7pts   
  Yield per passenger mile (in cents)     27.70   28.70      (3.5)
  Operating revenue per ASM
   (RASM) (in cents)                      20.86   20.83       0.1 
  Passenger revenue per ASM (in cents)    20.52   20.48       0.2 
  Operating expense per ASM (in cents)    19.51   23.55     (17.2)
  Operating expense per ASM excluding                             
   fuel and CRJ-700 fleet transition
   costs (b) (in cents)                   15.94   15.01       6.2 
  GAAP fuel cost per gallon               $1.96   $4.08     (52.0)
  Economic fuel cost per gallon (c)       $2.32   $2.58     (10.1)
  Fuel gallons (000,000)                   15.0    14.8       1.4 
  Average number of full-time                                     
   equivalent employees                   3,275   3,466      (5.5)
  Aircraft utilization (blk hrs/day)        8.1     8.0       1.3 
  Average aircraft stage length (miles)     330     315       4.8 
  Operating fleet at period-end              58      59    (1) a/c 



                                            Twelve Months Ended 
                                                 December 31,    
                                         ------------------------- 
  Financial Data (in millions):            2009    2008  % Change 
                                           ----    ----  -------- 
  Operating Revenues:                                             
  Passenger - brand flying               $381.9  $429.2     (11.0)
  Passenger - Alaska capacity purchase                            
   arrangement                            261.7   293.7     (10.9)
                                          -----   -----           
     Total passenger revenue              643.6   722.9     (11.0)
  Freight and mail                          2.7     2.7         - 
  Other - net                               8.1     8.3      (2.4)
                                            ---     ---           
  Total Operating Revenues                654.4   733.9     (10.8)
                                          -----   -----           
                                                                  
  Operating Expenses:                                             
  Wages and benefits                      185.2   194.1      (4.6)
  Variable incentive pay                   14.4     5.6     157.1 
  Aircraft fuel, including hedging                                
   gains and losses                       109.1   236.0     (53.8)
  Aircraft maintenance                     53.2    58.2      (8.6)
  Aircraft rent                            44.7    56.9     (21.4)
  Landing fees and other rentals           57.7    57.2       0.9 
  Contracted services                      32.1    29.1      10.3 
  Selling expenses                         27.1    31.1     (12.9)
  Depreciation and amortization            39.5    37.5       5.3 
  Food and beverage service                 2.4     2.6      (7.7)
  Other                                    39.4    42.7      (7.7)
  Fleet transition costs - CRJ-700            -    13.5        NM 
  Fleet transition costs - Q200             8.8    10.2        NM 
                                            ---    ----           
  Total Operating Expenses                613.6   774.7     (20.8)
                                          -----   -----           
                                                                  
  Operating Income (Loss)                  40.8   (40.8)       NM 
                                           ----   -----           
                                                                  
  Interest income                           2.0     5.4           
  Interest expense                        (19.9)  (23.6)          
  Interest capitalized                      0.3     3.0           
  Other - net                              (0.4)    0.2           
                                           ----     ---           
                                          (18.0)  (15.0)          
                                          -----   -----           
                                                                  
  Income (Loss) Before Income Tax         $22.8  $(55.8)          
                                          =====  ======           
                                                                  
  Combined Operating Statistics: (a)                              
  Revenue passengers (000)                6,759   7,390      (8.5)
  RPMs (000,000) "traffic"                2,408   2,635      (8.6)
  ASMs (000,000) "capacity"               3,292   3,617      (9.0)
  Passenger load factor                    73.1%   72.9%      0.2pts   
  Yield per passenger mile (in cents)     26.73   27.43      (2.6)
  Operating revenue per ASM
   (RASM) (in cents)                      19.88   20.29      (2.0)
  Passenger revenue per ASM (in cents)    19.55   19.99      (2.2)
  Operating expense per ASM (in cents)    18.64   21.42     (13.0)
  Operating expense per ASM excluding                             
   fuel and CRJ-700 fleet transition
   costs (b) (in cents)                   15.33   14.52       5.5 
  GAAP fuel cost per gallon               $1.82   $3.53     (48.4)
  Economic fuel cost per gallon (c)       $2.07   $3.05     (32.1)
  Fuel gallons (000,000)                   60.1    66.9     (10.2)
  Average number of full-time                                     
   equivalent employees                   3,308   3,699     (10.6)
  Aircraft utilization (blk hrs/day)        8.3     8.3         - 
  Average aircraft stage length (miles)     327     322       1.6 
  Operating fleet at period-end              58      59    (1) a/c 
                                                                  
  NM = Not Meaningful                                             
                                                                  
  (a) Represents combined information for Horizon flights, including those
      operated under a Capacity Purchase Agreement (CPA) with Alaska. See 
      page 11 for additional line of business information.
  (b) See page 11 for a reconciliation of these non-GAAP measures and a 
      discussion about why these measures may be important to investors.
  (c) See page 12 for a reconciliation of economic fuel cost.     


  Note A:  Pursuant to Regulation G, we are providing disclosure of the 
  reconciliation of reported non-GAAP financial measures to their most 
  directly comparable financial measures reported on a GAAP basis. We 
  believe that consideration of this measure of unit costs excluding fuel, 
  purchased capacity costs, and other noted items may be important to 
  investors for the following reasons: 

    -- By eliminating fuel expense and certain special items from our unit 
       cost metrics, we believe that we have better visibility into the 
       results of our non-fuel cost-reduction initiatives.  Our industry is 
       highly competitive and is characterized by high fixed costs, so even 
       a small reduction in non-fuel operating costs can result in a 
       significant improvement in operating results.  In addition, we 
       believe that all domestic carriers are similarly impacted by changes 
       in jet fuel costs over the long run, so it is important for 
       management (and thus investors) to understand the impact of (and 
       trends in) company-specific cost drivers such as labor rates and 
       productivity, airport costs, maintenance costs, etc., which are more 
       controllable by management. 
    -- Cost per ASM excluding fuel and certain special items is one of the 
       most important measures used by managements of both Alaska and 
       Horizon and by the Air Group Board of Directors in assessing 
       quarterly and annual cost performance.   
    -- Cost per ASM excluding fuel (and other items as specified in our plan
       documents) is an important metric for the employee incentive plan 
       that covers company management and the majority of other employee 
       groups. 
    -- Cost per ASM 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 new pilot contract transition costs 
       and fleet transition costs, is important because it provides 
       information on significant items that are not necessarily indicative 
       of future performance. Industry analysts and investors consistently 
       measure our performance without these items for better comparability 
       between periods and among other airlines. 
    -- Although we disclose our "mainline" passenger unit revenues for 
       Alaska, we do not (nor are we able to) evaluate mainline unit 
       revenues excluding the impact that changes in fuel costs have had on 
       ticket prices. Fuel expense represents a large percentage of our 
       total mainline 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. 


                                                                           
  Alaska Airlines, Inc.                                                    
  (in millions, except for per ASM unit information)                       
                                                                           
                                          Three Months     Twelve Months   
                                              Ended            Ended 
                                          December 31,      December  31,  
                                         --------------    ---------------
  Mainline unit cost reconciliations:     2009    2008      2009      2008 
  -----------------------------------     ----    ----      ----      ---- 
  Mainline operating expenses           $627.3  $743.6  $2,495.7  $3,036.5 
  Mainline ASMs                          5,675   5,590    23,144    24,218 
                                         -----   -----    ------    ------ 
                                                                          
  Mainline operating expenses
   per ASM (in cents)                    11.05   13.30     10.78     12.54
                                         =====   =====     =====     =====
                                                                          
  Mainline operating expenses           $627.3  $743.6  $2,495.7  $3,036.5 
  Less: aircraft fuel, including
   hedging gains and losses             (143.1) (298.4)   (549.0) (1,162.4)
  Less: new pilot contract transition                                     
   costs                                     -       -     (35.8)        - 
  Less: restructuring charges                -    (9.2)        -     (12.9)
  Less: fleet transition costs - MD-80       -       -         -     (47.5)
                                           ---     ---       ---     ----- 
  Mainline operating expenses excluding                                   
   fuel and other noted items           $484.2  $436.0  $1,910.9  $1,813.7 
  Mainline ASMs                          5,675   5,590    23,144    24,218 
                                         -----   -----    ------    ------ 
  Mainline operating expenses per ASM                                     
   excluding fuel and other noted
   items (in cents)                       8.53    7.80      8.26      7.49
                                          ====    ====      ====      ==== 

                                                                          
                                                                          
                                             Three Months     Twelve Months 
                                                Ended            Ended 
                                             December 31,     December 31, 
  Reconciliation to GAAP income (loss)     --------------    ---------------
   before taxes :                           2009    2008     2009      2008 
  ------------------------------------      ----    ----     ----      ---- 
  Income before taxes, excluding items                                     
   noted below                              $8.9   $23.8   $145.9     $25.2 
  Change in Mileage Plan terms                 -       -        -      42.3 
  New pilot contract transition costs          -       -    (35.8)        - 
  Restructuring charges                        -    (9.2)       -     (12.9)
  Fleet transition costs - MD-80               -       -        -     (47.5)
  Adjustments to reflect timing of gain
   or loss recognition resulting from    
   mark-to-market accounting on
   fuel hedges                              26.3   (66.5)    73.7    (118.9)
  Realized losses on hedge portfolio                                        
   restructuring                               -   (41.5)       -     (41.5)
                                             ---   -----      ---     ----- 
  GAAP income (loss) before taxes as                                        
   reported                               $35.2   $(93.4)  $183.8   $(153.3)
                                          =====   ======   ======   ======= 
                                                                           
  Note:  Mainline operating expenses per ASM excluding fuel and other noted
  items was higher than our most recent cost guidance provided in our 
  December 22, 2009 Investor Update.  The increase was primarily due to 
  final adjustments to our incentive pay expense, higher-than-expected 
  employee medical costs, the write-off of certain discontinued capital 
  projects, and higher costs associated with environmental remediation, 
  legal costs, and winter operations. 



  Horizon Air Industries, Inc.                                    
  (in millions, except for per ASM unit information)    

                                            Three Months   Twelve Months 
                                               Ended          Ended     
                                             December 31,  December 31,  
                                           --------------  -------------- 
  Unit cost reconciliations:                2009    2008    2009    2008 
  --------------------------                ----    ----    ----    ---- 
  Operating expenses                      $160.4  $185.1  $613.6  $774.7 
  ASMs                                       822     786   3,292   3,617 
                                             ---     ---   -----   ----- 
                                                        
  Operating expenses per ASM (in cents)    19.51   23.55   18.64   21.42
                                           =====   =====   =====   ===== 
                                                        
  Operating expenses                      $160.4  $185.1  $613.6  $774.7 
  Less: aircraft fuel, including hedging 
   gains and losses                        (29.4)  (60.4) (109.1) (236.0)
  Less: fleet transition costs - CRJ-700       -    (6.7)      -   (13.5)
                                             ---    ----     ---   ----- 
                                                        
  Operating expenses excluding fuel and 
   CRJ-700 fleet transition costs          $131.0  $118.0  $504.5  $525.2 
  ASMs                                        822     786   3,292   3,617 
                                              ---     ---   -----   ----- 
                                                        
  Operating expenses per ASM excluding fuel
   and CRJ-700 fleet transition
   costs (in cents)                         15.94   15.01   15.33   14.52
                                            =====   =====   =====   ===== 
                                                        
  Unit cost reconciliations-excluding
   all fleet transition costs:    
  ------------------------------------ 
  Operating expenses                       $160.4  $185.1  $613.6  $774.7 
  Less: aircraft fuel, including hedging 
   gains and losses                         (29.4)  (60.4) (109.1) (236.0)
  Less: fleet transition costs - CRJ-700        -    (6.7)      -   (13.5)
  Less: fleet transition costs - Q200           -    (0.5)   (8.8)  (10.2)
                                              ---    ----    ----   ----- 
                                                        
  Operating expenses excluding fuel and all
   fleet transition costs                  $131.0  $117.5  $495.7  $515.0 
  ASMs                                        822     786   3,292   3,617 
                                              ---     ---   -----   ----- 
                                                        
  Operating expenses per ASM excluding fuel
   and all fleet transition
   costs (in cents)                         15.94   14.95   15.06   14.24
                                            =====   =====   =====   ===== 
                                                        
  Reconciliation to GAAP income (loss) before taxes:    
  --------------------------------------------------    
  Income (loss) before taxes, excluding
   items noted below                         $2.3    $3.2    $7.7  $(10.4)
  Fleet transition costs - CRJ-700              -    (6.7)      -   (13.5)
  Adjustments to reflect timing of gain or
   loss recognition resulting from
   mark-to-market accounting on fuel hedges   5.4   (13.7)   15.1   (23.4)
  Realized losses on hedge portfolio
   restructuring                                -    (8.5)      -    (8.5)
                                              ---    ----     ---    ---- 
  GAAP income (loss) before taxes
   as reported                               $7.7  $(25.7)  $22.8  $(55.8)
                                             ====  ======   =====  ====== 



  Line of Business Information:      
  -----------------------------      
  Horizon brand flying includes those routes in the Horizon system not 
  covered by the Alaska Capacity Purchase Agreement  (CPA).  Horizon bears 
  the revenue risk in those markets and, as a result, traffic, yield and 
  load factor impact revenue recorded by Horizon.  In the CPA arrangement, 
  Horizon is insulated from market revenue factors and is guaranteed  
  contractual revenue amounts based on operational capacity.  As a result, 
  yield and load factor information is not  presented.


                           Three Months Ended December 31, 2009
                           ------------------------------------
                                     Capacity and Mix
                                     ----------------
                      2009 Actual    2008 Actual      Change       Current %
                       (000,000)      (000,000)        Y-O-Y        Total
                      -----------    ------------    --------       -----
  Brand Flying             464           485           (4.3%)        56%
  Alaska CPA               358           301           18.9%         44%
                           ---           ---           ----          ---
  System Total             822           786            4.6%        100%
                           ===           ===            ===         ===



                       Load Factor            Yield              RASM
                       -----------            -----              ----
                           Point Change   Actual   Change   Actual   Change
                    Actual    Y-O-Y     (in cents) Y-O-Y  (in cents) Y-O-Y
                    ------    -----      --------  -----   --------  -----
  Brand Flying       73.5%     2.6        28.78     0.5%    21.74     4.1%
  Alaska CPA           NM       NM           NM      NM     19.69    (5.2%)
  System Total         --       --           --     ---    ------    ------
                     74.1%     2.7        27.70    (3.5%)   20.86     0.1%
                     ====      ===        =====    =====    ===       ====

  NM = Not Meaningful



                            Twelve Months Ended December 31, 2009
                            -------------------------------------
                                     Capacity and Mix
                                     ----------------
                      2009 Actual    2008 Actual      Change       Current %
                       (000,000)      (000,000)        Y-O-Y        Total
                      -----------    ------------    --------       -----
  Brand Flying           1,927         2,221          (13.2%)        59%
  Alaska CPA             1,365         1,396           (2.2%)        41%
                         ------        ----            -----         ---
  System Total           3,292         3,617           (9.0%)       100%
                         ======        ====             ====        ====



                       Load Factor            Yield              RASM
                       -----------            -----              ----
                           Point Change  Actual    Change   Actual   Change
                    Actual    Y-O-Y     (in cents) Y-O-Y  (in cents) Y-O-Y
                    ------    -----      --------  -----   --------  -----
  Brand Flying       72.4%     1.3        27.36     0.6%    20.38     2.8%
  Alaska CPA           NM       NM           NM      NM     19.17    (8.9%)
        --             --       --          ---      --     -----     ----
  System Total       73.1%     0.2        26.73    (2.6%)   19.88    (2.0%)
                     ====      ===        =====    =====    =====     ====

  NM  Not Meaningful



  Alaska Airlines Fuel Reconciliation                                       
  -----------------------------------                                       
  (in millions, except for per gallon amounts)                              

                                        Three Months Ended December 31,   
                                        -------------------------------   
                                            2009                2008
                                            ----                ----
                                     Dollars  Cost/Gal   Dollars  Cost/Gal
                                     -------  --------   -------  --------
  Raw or "into-plane" fuel cost       $161.7     $2.16    $185.0     $2.45
  Minus gains, or plus the losses,                                        
   during the period on settled
   hedges                                7.7      0.10       5.4      0.07
                                         ---      ----       ---      ----
  Economic fuel expense               $169.4     $2.26    $190.4     $2.52
                                      ------     -----    ------     -----
  Adjustments to reflect timing of                                        
   (gain) or loss recognition resulting
   from mark-to-market accounting      (26.3)    (0.35)     66.5      0.88
  Plus net realized losses on hedge                                       
   portfolio restructuring*                -         -      41.5      0.55
                                         ---       ---      ----      ----
  Total adjustments                    (26.3)    (0.35)    108.0      1.43
                                       -----     -----     -----      ----
  GAAP fuel expense                   $143.1     $1.91    $298.4     $3.95
                                      ======     =====    ======     =====
  Fuel gallons                          75.0                75.5          
                                        ====                ====          


                                        Twelve Months Ended December 31,  
                                        --------------------------------  
                                             2009                2008
                                             ----                ----
                                     Dollars  Cost/Gal   Dollars  Cost/Gal
                                     -------  --------   -------  --------
  Raw or "into-plane" fuel cost       $572.3     $1.88  $1,103.8     $3.31
  Minus gains, or plus the losses,                                         
   during the period on settled hedges  50.4      0.17    (101.8)    (0.30)
                                        ----      ----    ------     -----
  Economic fuel expense               $622.7     $2.05  $1,002.0     $3.00
                                      ------     -----  --------     -----
  Adjustments to reflect timing of                                        
   (gain) or loss recognition                                             
   resulting from                                                         
    mark-to-market accounting          (73.7)    (0.24)    118.9      0.36
  Plus net realized losses on hedge                                       
   portfolio restructuring*                -         -      41.5      0.12
                                         ---       ---      ----      ----
  Total adjustments                    (73.7)    (0.24)    160.4      0.48
                                       -----     -----     -----      ---- 
  GAAP fuel expense                   $549.0     $1.81  $1,162.4     $3.48 
                                      ======     =====  ========     ===== 
  Fuel gallons                         304.9               333.8           
                                       =====               =====           
                                                                           

  Horizon Air Fuel Reconciliation                                          
  -------------------------------                                          
  (in millions, except for per gallon amounts)                             

                                        Three Months Ended December 31,    
                                        -------------------------------    
                                            2009                2008 
                                            ----                ---- 
                                     Dollars  Cost/Gal   Dollars  Cost/Gal 
                                     -------  --------   -------  -------- 
  Raw or "into-plane" fuel cost        $33.2     $2.21     $37.1     $2.51 
  Minus gains, or plus the losses,                                         
   during the period on settled                                            
   hedges                                1.6      0.11       1.1      0.07 
                                         ---      ----       ---      ---- 
  Economic fuel expense                $34.8     $2.32     $38.2     $2.58 
                                       -----     -----     -----     ----- 
  Adjustments to reflect timing of                                         
   (gain) or loss recognition                                              
   resulting from                                                          
    mark-to-market accounting           (5.4)    (0.36)     13.7      0.93 
  Plus net realized losses on hedge                                        
   portfolio restructuring*                -         -       8.5      0.57 
                                         ---       ---       ---      ---- 
  Total adjustments                     (5.4)    (0.36)     22.2      1.50 
                                        ----     -----      ----      ---- 
  GAAP fuel expense                    $29.4     $1.96     $60.4     $4.08 
                                       =====     =====     =====     ===== 
  Fuel gallons                          15.0                14.8           
                                        ====                ====           

                                                                           
                                        Twelve Months Ended December 31,   
                                        --------------------------------   
                                            2009                2008 
                                            ----                ---- 
                                     Dollars  Cost/Gal   Dollars  Cost/Gal 
                                     -------  --------   -------  -------- 
  Raw or "into-plane" fuel cost       $113.9     $1.90    $225.0     $3.36 
  Minus gains, or plus the losses,                                         
   during the period on settled                                            
   hedges                               10.3      0.17     (20.9)    (0.31)
                                        ----      ----     -----     ----- 
  Economic fuel expense               $124.2     $2.07    $204.1     $3.05 
                                      ------     -----    ------     ----- 
  Adjustments to reflect timing of                                         
   (gain) or loss recognition                                              
   resulting from                                                          
    mark-to-market accounting          (15.1)    (0.25)     23.4      0.35 
  Plus net realized losses on hedge                                        
   portfolio restructuring*                -         -       8.5      0.13 
                                         ---       ---       ---      ---- 
  Total adjustments                    (15.1)    (0.25)     31.9      0.48 
                                       -----     -----      ----      ---- 
  GAAP fuel expense                   $109.1     $1.82    $236.0     $3.53 
                                      ======     =====    ======     ===== 
  Fuel gallons                          60.1                66.9           
                                        ====                ====           
                                                                             
  * In 2008, these amounts represent losses on the early termination of 
    hedge contracts originally scheduled to settle in 2009 and 2010.

First Call Analyst:
FCMN Contact: maria.koenig@alaskaair.com

SOURCE: Alaska Air Group, Inc.

CONTACT: Media, Bobbie Egan of Alaska Airlines, +1-206-392-5101, or Dan
Russo of Horizon Air, +1-206-392-0218; or Investor/analyst, Shannon Alberts of
Alaska Air Group, +1-206-392-5218

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