Alaska Air Group Reports Fourth Quarter Results

Alaska Air Group, Inc. today reported a fourth quarter net loss of $44.9 million, or $1.66 per diluted share, compared to a net loss of $16.1 million, or $0.60 per diluted share, in the fourth...

Alaska Air Group, Inc. today reported a fourth quarter net loss of $44.9 million, or $1.66 per diluted share, compared to a net loss of $16.1 million, or $0.60 per diluted share, in the fourth quarter of 2003. For the full year, the company reported a net loss of $15.3 million, or $0.57 per share, compared to net income of $13.5 million, or $0.51 per diluted share in 2003.

Fourth quarter results in 2004 include a restructuring charge of $25.9 million ($16.0 million, net of tax, or $0.59 per share) and additional impairment charges of $0.6 million ($0.4 million, net of tax, or $0.01 per share) related to Horizon’s retired F-28 fleet. This quarter’s results also include $23.1 million ($14.2 million, net of tax, or $0.53 per share) in mark-to-market hedging losses reflecting a decrease in the fair value of the company’s fuel hedge portfolio during the quarter. Without these items, the net loss would have been $14.3 million, or $0.53 per diluted share during the fourth quarter of 2004. Excluding the full-year impact of the items discussed above, as well as the B737-200 impairment charge and the navigation fee recovery recorded earlier in the year, and government compensation recorded in 2003, the 2004 full year net income would have been $5.2 million, or $0.19 per diluted share, compared to a net loss of $30.8 million, or $1.15 per diluted share, in 2003.

"The improvement in our operating results for the year shows that we are continuing to make headway with our restructuring. Our move in early 2004 to simplify fares, coupled with our employees’ ongoing focus on the customer experience, contributed to a jump in our passenger traffic and loads," said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. "However, we would have clearly been in the red in 2004, after adjusting for the unusual items, if not for fuel hedging gains.

"As we head into 2005, we must continue to pursue cost savings initiatives that will help us become consistently profitable, and weather the onslaught of low-cost competition, restructured network airlines and very high fuel prices," Ayer said.

Alaska Airlines’ passenger traffic in the fourth quarter increased 10.2 percent on a capacity increase of 5.0 percent. Alaska’s load factor increased 3.4 percentage points to 72.9 percent compared to the same period in 2003. Alaska’s operating revenue per available seat mile (ASM) increased 0.4 percent, while its operating cost per ASM excluding fuel and restructuring charges decreased 8.6 percent. Alaska’s pretax loss for the quarter was $68.9 million, compared to a pretax loss of $27.3 million in 2003. Excluding the unusual items referenced above, Alaska’s pretax loss was $22.7 million for the quarter.

Horizon Air’s passenger traffic in the fourth quarter increased 36.8 percent on a 28.1 percent capacity increase. Horizon’s load factor increased by 4.4 percentage points to 71.7 percent compared to the same period in 2003. Horizon’s operating revenue per ASM decreased 17.2 percent, while its operating cost per ASM excluding fuel and the impairment charge decreased 18.1 percent. The decrease in Horizon’s revenue per ASM and cost per ASM excluding fuel is largely due to the addition of Horizon’s contract flying for Frontier Airlines. This flying represented 23.1 percent of Horizon’s capacity during the fourth quarter and 9.9 percent of its passenger revenues. Horizon’s pretax loss for the quarter was $1.6 million, compared to a pretax income of $5.4 million in 2003. Excluding the unusual items referenced above, Horizon’s pretax income was $1.8 million for the quarter.

Alaska Air Group had cash and short-term investments at Dec. 31, 2004, of approximately $874 million compared to $812 million at Dec. 31, 2003. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 78 percent as of Dec. 31, 2004, compared to 77 percent as of Dec. 31, 2003.

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 following this release.

A conference call regarding the fourth quarter 2004 results will be simulcast via the Internet at 8:30 a.m. Pacific Time. It may be accessed through the company’s website at www.alaskaair.com. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at www.alaskaair.com.

This report may contain forward-looking statements that are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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: changes in our operating costs including fuel; the competitive environment and other trends in our industry; economic conditions; our reliance on automated systems; actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities; our ability to meet our cost reduction goals; the outcome of the arbitration with the Air Line Pilots Association; labor disputes; changes in laws and regulations; liability and other claims asserted against us; failure to expand our business; interest rates and the availability of financing; our ability to attract and retain qualified personnel; changes in our business plans; our significant indebtedness; downgrades of our credit ratings; and inflation. For a discussion of these and other risk factors, see Item 1 of the Company’s Amendment No. 1 to its Annual Report for the year ended Dec. 31, 2003, on Form 10-K/A. 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 report to conform them to actual results.

                            ALASKA AIR GROUP, INC.

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

                                       Three Months        Twelve Months
                                    Ended December 31   Ended December 31

                                    2004       2003      2004       2003
  Operating Revenues:
  Passenger                       $597.9     $564.8   $2,494.6   $2,243.0
  Freight and mail                  22.0       18.7       90.3       82.3
  Other -- net                      36.4       29.8      138.9      119.5
  Total Operating Revenues         656.3      613.3    2,723.8    2,444.8

  Operating Expenses:
  Wages and benefits               229.2      240.4      965.9      937.9
  Employee profit sharing            1.2        3.7        1.6        3.7
  Contracted services               29.3       25.6      108.4      100.1
  Aircraft fuel                    155.9       92.8      540.7      363.3
  Aircraft maintenance              46.2       43.6      184.1      183.8
  Aircraft rent                     45.9       48.8      187.4      194.9
  Food and beverage service         12.4       14.4       51.9       61.0
  Other selling expenses
   and commissions                  33.4       34.1      144.9      133.2
  Depreciation and amortization     36.8       34.8      142.6      133.0
  Loss on sale of assets             2.4        2.0        1.0        2.2
  Landing fees and other rentals    46.6       44.3      185.1      164.9
  Other                             48.0       45.0      196.4      184.3
  Restructuring charges             25.9         --       53.4         --

  Impairment of aircraft
   and spare engines                 0.6         --       40.2         --

  Total Operating Expenses         713.8      629.5    2,803.6    2,462.3
  Operating Loss                   (57.5)     (16.2)     (79.8)     (17.5)

  Nonoperating Income (Expense):
  Interest income                    5.9        4.5       24.5       12.8
  Interest expense                 (13.0)     (12.4)     (51.9)     (47.8)
  Interest capitalized               0.6        0.4        1.7        2.3
  U.S. government compensation        --         --         --       71.4
  Other -- net                      (8.9)      (0.4)      84.9        7.8
                                   (15.4)      (7.9)      59.2       46.5
  Income (loss) before income tax  (72.9)     (24.1)     (20.6)      29.0
  Income tax expense (benefit)     (28.0)      (8.0)      (5.3)      15.5
  Net Income (Loss)               ($44.9)    ($16.1)    ($15.3)     $13.5


  Basic Earnings (Loss)
   Per Share                      $(1.66)    $(0.60)    $(0.57)     $0.51
  Diluted Earnings (Loss)
   Per Share                      $(1.66)    $(0.60)    $(0.57)     $0.51

  Shares used for computation:
   Basic                          26.975     26.728     26.859     26.648
   Diluted                        26.975     26.728     26.859     26.730


                            Alaska Air Group, Inc.

  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

                                              December 31,   December 31,
  (In Millions)                                  2004           2003

  Cash and marketable securities                 $874           $812

  Total current assets                         $1,242         $1,148
  Property and equipment-net                    1,908          1,949
  Other assets                                    185            162
  Total assets                                 $3,335         $3,259

  Current liabilities                            $957         $1,017
  Long-term debt and capital lease obligations    990            907
  Other liabilities and credits                   723            661
  Shareholders' equity                            665            674
  Total liabilities and shareholders' equity   $3,335         $3,259


                AlaskaAirlines Financial and Statistical Data

                                 Quarter Ended           Year Ended
                                  December 31            December 31
  Financial Data                              %                        %
   (in millions):            2004   2003 Change     2004     2003 Change
  Operating Revenues:
  Passenger                $477.8 $460.3    3.8 $2,023.6 $1,840.4  10.0
  Freight and mail           21.1   17.5   20.6     86.4     77.3  11.8
  Other -- net               32.4   26.7   21.3    123.0    109.7  12.1
  Total Operating
   Revenues                 531.3  504.5    5.3  2,233.0  2,027.4  10.1

  Operating Expenses:
  Wages and benefits        187.0  199.9   (6.5)   798.5    778.6   2.6
  Employee profit
   sharing                    0.9    2.9     NM      1.2      2.9    NM
  Contracted services        26.2   20.7   26.6     96.5     81.6  18.3
  Aircraft fuel             135.6   79.9   69.7    472.0    312.1  51.2
  Aircraft maintenance       34.5   35.7   (3.4)   145.8    153.4  (5.0)
  Aircraft rent              28.0   31.1  (10.0)   113.5    123.9  (8.4)
  Food and beverage
   service                   11.9   13.9  (14.4)    49.8     58.7 (15.2)
  Other selling expenses
   and commissions           31.1   39.0  (20.3)   132.2    148.0 (10.7)
  Depreciation and
   amortization              32.9   31.7    3.8    128.1    119.5   7.2
  Loss on sale of assets      2.6    2.1     NM      2.0      3.4    NM
  Landing fees and
   other rentals             35.9   34.3    4.7    142.0    127.8  11.1
  Other                      35.6   34.0    4.7    146.6    136.9   7.1
  Restructuring charges      25.9     --  100.0     53.4       -- 100.0
  Impairment of aircraft       --     --     --     36.8       -- 100.0
  Total Operating
   Expenses                 588.1  525.2   12.0  2,318.4  2,046.8  13.3

  Operating Loss            (56.8) (20.7)    NM    (85.4)   (19.4)   NM

  Interest income             6.2    4.9            26.2     15.2
  Interest expense          (11.0) (11.3)          (44.1)   (45.2)
  Interest capitalized        0.4    0.2             1.1      1.5
  U.S. government
   compensation                --     --              --     52.8
  Other -- net               (7.7)  (0.4)           75.2      6.9
                            (12.1)  (6.6)           58.4     31.2

  Income (Loss) Before
   Income Tax             $(68.9) $(27.3)    NM   $(27.0)   $11.8    NM

  Operating Statistics:
  Revenue passengers (000)  3,998  3,712    7.7   16,295   15,047   8.3
  RPMs (000,000)            3,976  3,608   10.2   16,231   14,554  11.5
  ASMs (000,000)            5,452  5,194    5.0   22,276   20,804   7.1
  Passenger load
   factor                    72.9%  69.5%   3.4pts  72.9%    70.0%  2.9pts
  Yield per passenger
   mile (in cents)          12.02  12.76   (5.8)   12.47    12.65  (1.4)
  Operating revenue
   per ASM (in cents)        9.75   9.71    0.4    10.02     9.74   2.9
  Operating expenses
   per ASM (in cents) (a)   10.79  10.11    6.7    10.41     9.84   5.8
  Operating expense per
   ASM excluding fuel,
   navigation fee recovery,
   restructuring and
   impairment charges
   (in cents) (a)            7.83   8.57   (8.6)    7.92     8.34  (5.0)
  Raw fuel cost
   per gallon
   (in cents) (a)           159.9  102.4   56.2    137.2     98.3  39.6
  GAAP fuel cost
   per gallon
   (in cents) (a)           155.7   95.8   62.5    133.1     92.5  43.9
  Economic fuel cost
   per gallon
   (in cents) (a)           140.2   94.8   47.9    125.9     90.9  38.5
  Fuel gallons (000,000)      7.1   83.4    4.4    354.7    337.3   5.2
  Average number
   of employees             9,433  9,921   (4.9)   9,968   10,040  (0.7)
  Aircraft utilization
   (blk hrs/day)             10.8   10.3    4.9     11.0     10.5   4.8
  Operating fleet at
   period-end                 108    109   (0.9)     108      109  (0.9)

  NM = Not Meaningful

  (a) See Note A following.


          Horizon Air Financial and Statistical Data

                          Quarter Ended December 31 Year Ended December 31
  Financial Data                                %                     %
   (in millions):             2004    2003  Change    2004   2003 Change
  Operating Revenues:
  Passenger                $124.4  $115.5    7.7   $484.8 $442.3   9.6
  Freight and mail            0.9     1.2  (25.0)     3.9    5.0 (22.0)
  Other -- net                3.6     4.8  (25.0)    14.5   16.5 (12.1)
  Total Operating
   Revenues                 128.9   121.5    6.1    503.2  463.8   8.5

  Operating Expenses:
  Wages and benefits         41.1    40.5    1.5    163.1  159.3   2.4
  Employee profit
   sharing                    0.3     0.8     NM      0.4    0.8    NM
  Contracted services         5.3     6.6  (19.7)    20.7   25.0 (17.2)
  Aircraft fuel              20.3    12.9   57.4     68.7   51.2  34.2
  Aircraft maintenance       11.7     7.9   48.1     38.3   30.4  26.0
  Aircraft rent              17.9    17.7    1.1     73.9   71.0   4.1
  Food and beverage
   service                    0.5     0.5    0.0      2.1    2.3  (8.7)
  Other selling expenses
   and commissions            6.6     6.1    8.2     26.5   24.9   6.4
  Depreciation and
   amortization               3.7     2.8   32.1     13.4   12.3   8.9
  Gain on sale of assets     (0.2)   (0.1)    NM     (1.0)  (1.2)   NM
  Landing fees and
   other rentals             10.2    10.3   (1.0)    41.4   38.5   7.5
  Other                      11.0    10.0   10.0     43.0   42.6   0.9
  Impairment of aircraft
   and spare engines          0.6      --  100.0      3.4     -- 100.0
  Total Operating
   Expenses                 129.0   116.0   11.2    493.9  457.1   8.1

  Operating Income (Loss)    (0.1)    5.5     NM      9.3    6.7    NM

  Interest income             0.2     0.2             1.1    0.7
  Interest expense           (0.7)   (0.5)           (3.9)  (2.4)
  Interest capitalized        0.2     0.2             0.6    0.8
  U.S. government
   compensation                --      --              --   18.6
  Other -- net               (1.2)     --            10.0    0.9
                             (1.5)   (0.1)            7.8   18.6

  Income (Loss) Before
   Income Tax               $(1.6)   $5.4     NM    $17.1  $25.3    NM

  Operating Statistics:
  Revenue passengers (000)  1,568   1,263   24.1    5,930  4,934  20.2
  RPMs (000,000)              569     416   36.8    2,155  1,640  31.4
  ASMs (000,000)              793     619   28.1    3,107  2,569  20.9
  Passenger load factor      71.7%   67.3%   4.4pts  69.3%  63.9%  5.4pts
  Yield per passenger
   mile (in cents)          21.85   27.72  (21.2)   22.50  26.96 (16.5)
  Operating revenue
   per ASM (in cents)       16.25   19.62  (17.2)   16.20  18.06 (10.3)
  Operating expenses
   per ASM (in cents) (a)   16.26   18.74  (13.2)   15.90  17.76 (10.5)
  Operating expense
   per ASM excluding
   fuel and impairment
   charges (in cents) (a)   13.62   16.64  (18.1)   13.58  15.80 (14.1)
  Raw fuel cost
   per gallon
   (in cents) (a)           166.4   106.1   56.8    142.3  101.9  39.6
  GAAP fuel cost
   per gallon
   (in cents) (a)           162.4    98.5   64.9    138.2   95.3  45.0
  Economic fuel cost
   per gallon
   (in cents) (a)           147.9    98.2   50.6    131.3   93.4  40.6
  Fuel gallons (000,000)     12.5    13.1   (4.6)    49.7   53.7  (7.4)
  Average number
   of employees             3,493   3,320    5.2    3,423  3,359   1.9
  Aircraft utilization
   (blk hrs/day)              8.5     7.5   13.3      8.3    7.8   6.4
  Operating fleet at
   period-end                  65      62    4.8       65     62   4.8

  NM = Not Meaningful

  (a) See Note A following.


   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), restructuring charges, aircraft impairment charges, government compensation in 2003 and a large recovery in 2004 of disputed navigation fees paid in prior years (of which $7.7 million was recorded in operating expenses and $3.3 million was recorded in non-operating income). 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 impairment and restructuring charges, government compensation and the navigation fee recovery in 2004 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.:
  ($ in millions)
                                  Three Months Ended  Twelve Months Ended
                                     December 31,          December 31,
  Unit cost reconciliations:        2004       2003       2004       2003
  Operating expenses              $588.1     $525.2   $2,318.4   $2,046.8
  ASMs (000,000)                   5,452      5,194     22,276     20,804
  Operating expenses
   per ASM (in cents)              10.79      10.11      10.41       9.84

  Operating expenses              $588.1     $525.2   $2,318.4   $2,046.8
  Less:  aircraft fuel            (135.6)     (79.9)    (472.0)    (312.1)
  Less:  impairment of aircraft       --         --      (36.8)        --

  Less: restructuring charges      (25.9)        --      (53.4)        --

  Add:  navigation fee settlement     --         --        7.7         --

  Operating expense excluding
   fuel, navigation fee settlement,
   impairment and
   restructuring charges          $426.6     $445.3   $1,763.9   $1,734.7
  ASMs (000,000)                   5,452      5,194     22,276     20,804
  Operating expense per
   ASM excluding fuel,
   navigation fee settlement,
   impairment and
   restructuring charges
   (in cents)                       7.83       8.57       7.92       8.34

  Aircraft fuel reconciliations:
  Fuel expense before
   hedge activities
   ("raw fuel")                   $139.3      $85.4     $486.6     $331.7
  Fuel gallons (000,000)            87.1       83.4      354.7      337.3
  Raw fuel cost per gallon
   (in cents)                      159.9      102.4      137.2       98.3

  Fuel expense before
   hedge activities
   ("raw fuel")                   $139.3      $85.4     $486.6     $331.7
  Less:  gains on settled
   hedges included
   in fuel expense                  (3.7)      (5.5)     (14.6)     (19.6)
  GAAP fuel expense               $135.6      $79.9     $472.0     $312.1
  Fuel gallons (000,000)            87.1       83.4      354.7      337.3
  GAAP fuel cost per gallon
   (in cents)                      155.7       95.8      133.1       92.5

  GAAP fuel expense               $135.6      $79.9     $472.0     $312.1
  Less:  gains on settled
   hedges included in
   nonoperating income (expense)   (13.5)      (0.8)     (25.2)      (5.4)
  Adjusted fuel                    122.1       79.1      446.8      306.7
  Fuel gallons (000,000)            87.1       83.4      354.7      337.3
  Economic fuel cost per gallon
   (in cents)                      140.2       94.8      125.9       90.9

  Mark-to-market gains (losses)
   included in non-operating

   income related to hedges
   that settle in future periods  ($20.3)        --      $50.1         --

  Reconciliation to GAAP pretax income (loss):
  Pretax income (loss) excluding
   impairment and restructuring
   charges, navigation fee settlement,
   government compensation and
   mark-to-market hedging gains   ($22.7)    ($27.3)      $2.1     ($41.0)
  Less:  impairment of aircraft                  --      (36.8)        --
  Less:  restructuring charges     (25.9)        --      (53.4)        --

  Add:  government compensation                  --         --       52.8
  Add:  mark-to-market hedging
   gains (losses) included in
   nonoperating income (expense)   (20.3)        --       50.1         --

  Add:  navigation fee settlement     --         --       11.0         --
  Pretax income (loss)
   reported GAAP amounts          ($68.9)    ($27.3)    ($27.0)      $11.8


  Horizon Air Industries, Inc.
   ($ in millions)
                                  Three Months Ended   Twelve Months Ended
                                     December 31,          December 31,
  Unit cost reconciliations:        2004       2003       2004       2003
  Operating expenses              $129.0     $116.0     $493.9     $457.1
  ASMs (000,000)                     793        619      3,107      2,569
  Operating expenses per ASM
   (in cents)                      16.26      18.74      15.90      17.76

  Operating expenses              $129.0     $116.0     $493.9     $457.1
  Less:  aircraft fuel             (20.3)     (12.9)     (68.7)     (51.2)
  Less:  impairment of aircraft     (0.6)        --       (3.4)        --
  Operating expense excluding
   fuel and impairment charge     $108.1     $103.1     $421.8     $405.9
  ASMs (000,000)                     793        619      3,107      2,569
  Operating expense per ASM
   excluding fuel and
   impairment charge (in cents)    13.62      16.64      13.58      15.80

  Aircraft fuel reconciliations:
  Fuel expense before hedge
   activities ("raw fuel")         $20.8      $13.9      $70.7      $54.7
  Fuel gallons (000,000)            12.5       13.1       49.7       53.7
  Raw fuel cost per gallon
   (in cents)                      166.4      106.1      142.3      101.9

  Fuel expense before hedge
   activities ("raw fuel")         $20.8      $13.9      $70.7      $54.7
  Less:  gains on settled hedges
   included in fuel expense         (0.5)      (1.0)      (2.0)      (3.5)
  GAAP fuel expense                $20.3      $12.9      $68.7      $51.2
  Fuel gallons (000,000)            12.5       13.1       49.7       53.7
  GAAP fuel cost per gallon
   (in cents)                      162.4       98.5      138.2       95.3

  GAAP fuel expense                $20.3      $12.9      $68.7      $51.2
  Less: gains on settled hedges
   included in nonoperating
   income (expense)                 (1.8)      (0.1)      (3.4)      (1.0)
  Adjusted fuel                     18.5       12.8       65.3       50.2
  Fuel gallons (000,000)            12.5       13.1       49.7       53.7
  Economic fuel cost per gallon
   (in cents)                      147.9       98.2      131.3       93.4

  Mark-to-market gains (losses)
   included in non-operating
   income related to hedges
   that settle in future periods   ($2.8)        --       $6.8         --


  Reconciliation to GAAP pretax income (loss):
  Pretax income (loss) excluding
   impairment charge, government
   compensation and mark-to-market
   hedging gains                    $1.8       $5.4      $13.7       $6.7
  Less:  impairment of aircraft
   and related spare parts          (0.6)        --       (3.4)        --

  Add:  government compensation       --         --         --       18.6
  Add:  mark-to-market hedging
   gains included in nonoperating
   income (expense)                 (2.8)        --        6.8         --

  Pretax income (loss) reported
   GAAP amounts                    ($1.6)      $5.4      $17.1      $25.3


   Air Group Net Income (Loss) and EPS Reconciliation:

The following table summarizes Alaska Air Group, Inc.’s net income and diluted earnings per share during 2003 and 2004 excluding restructuring and impairment charges, navigation fee recovery, the second, third and fourth quarter of 2004 hedging mark-to-market gains (losses) and government compensation as reported in accordance with GAAP (in millions except per share amounts):

                                       Three Months Ended December 31,
                                         2004                  2003
                                Dollars  Diluted EPS  Dollars Diluted EPS
  Net loss and diluted EPS
   excluding mark-to-market
   hedging losses, restructuring charges
   and impairment charges        ($14.3)     (0.53)    ($16.1)    ($0.60)
  Mark-to-market hedging losses,
   net of tax                     (14.2)     (0.53)         --         --
  Restructuring charges,
   net of tax                     (16.0)     (0.59)         --         --
  Impairment charges,
   net of tax                      (0.4)     (0.01)         --         --
  Reported GAAP amounts          ($44.9)    ($1.66)     ($16.1)    ($0.60)

                                      Twelve Months Ended December 31,
                                         2004                  2003
                                 Dollars Diluted EPS  Dollars Diluted EPS
  Net income (loss) and diluted
   EPS excluding mark-to-market
   hedging gains, navigation fee
   settlement, restructuring
   charges, government compensation
   and impairment charge            $5.2       0.19     ($30.8)    ($1.15)
  Government compensation,
   net of tax                         --         --       44.3       1.66
  Navigation fee recovery            6.3       0.23         --         --
  Mark-to-market hedging gains,
   net of tax                       31.7       1.18         --         --

  Restructuring charges,
   net of tax                      (31.8)     (1.18)        --         --
  Impairment charges,
   net of tax                      (26.7)     (0.99)        --         --
  Reported GAAP amounts           ($15.3)     (0.57)     $13.5      $0.51


Forecasted Financial Measures During our quarterly earnings conference call, we expect to discuss forward- looking forecasted unit cost information for 2005. 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 cost     Forecast of fuel   Forecast of total
             per available seat   cost per available  operating cost per
                mile, excluding            seat mile      available seat
                   fuel (cents)         (see Note 1)   mile, as reported
                                                         on a GAAP basis
                                                                 (cents)

  First quarter 2005    8.2 to 8.3            1.9           10.1 to 10.2
  Second quarter 2005
  Third quarter 2005
  Fourth quarter 2005

  Total 2005

                                 Horizon Air

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


  First quarter 2005    14.7                 2.2                  16.9
  Second quarter 2005   13.2                 2.1                  15.3
  Third quarter 2005    12.0                 2.1                  14.1
  Fourth quarter 2005   12.8                 2.3                  15.1

  Total 2005            13.1                 2.2                  15.3


Note 1: Our forecast of fuel costs is based on anticipated gallons consumed and estimated fuel cost per gallon for both Alaska and Horizon. The estimate also excludes the benefit from settled hedges recorded in other non-operating income as it does not impact our operating cost per available seat mile as presented on a GAAP basis. Given the volatility of fuel prices, readers should be cautioned that actual fuel expense will likely differ from the forecast above.

SOURCE: Alaska Air Group, Inc.

CONTACT: Brad Tilden, +1-206-392-5362, or Caroline Boren,
+1-206-392-5799, both of Alaska Air Group

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