Alaska Air Group Reports Second Quarter Results

Alaska Air Group, Inc. today reported a second quarter net loss of $1.7 million, or $0.06 per diluted share, compared to net income of $45.2 million, or $1.70 per diluted share, in the second quarter of 2003.

Second quarter results include impairment charges of $37.2 million ($24.7 million, net of tax, or $0.92 per share), substantially all of which was associated with a decision to accelerate the retirement of the company's Boeing 737-200C fleet. Second quarter results also include $22.3 million ($14.8 million, net of tax, or $0.55 per share) in mark-to-market hedging gains reflecting an increase in the fair value of the company's current hedge portfolio since March 31, 2004, which resulted from the loss of "hedge accounting" during the quarter. Without these items in 2004 and excluding the government compensation received in 2003, net income would have been $8.2 million, or $0.31 per share during 2004, compared to net income of $0.9 million, or $0.04 per share, in 2003.

"These results demonstrate real progress with our plan to reduce costs," said Bill Ayer, chairman and chief executive officer. "But change in our industry has been rapid, radical and permanent, so we need to pick up the pace. As we proceed, we will consider every possible option that helps us achieve near-term cost competitiveness and, in turn, assures our company's long-term viability."

Operationally, Alaska Airlines' passenger traffic in the second quarter increased 11.6 percent on a capacity increase of 8.2 percent. Alaska's load factor increased 2.2 percentage points to 72.8 percent compared to the same period in 2003. Alaska's operating revenue per available seat mile (ASM) increased 4.6 percent, while its operating cost per ASM excluding fuel and impairment charge decreased 4.1 percent. Alaska's pretax loss for the quarter was $2.8 million, compared to pretax income of $59.6 million in 2003. Excluding the notable items referenced above, Alaska's pretax income was $14.4 million for the quarter compared to $6.8 million in 2003.

Horizon Air's passenger traffic in the second quarter increased 33.8 percent on a 25.1 percent capacity increase. Horizon's load factor increased by 4.2 percentage points to 67.5 percent compared to the same period in 2003. Horizon's operating revenue per ASM decreased 9.9 percent, while its operating cost per ASM excluding fuel and impairment charge decreased 17.2 percent. The decrease in Horizon's revenue per ASM and cost per ASM excluding fuel and impairment charge is largely due to the addition of Horizon's contract flying for Frontier Airlines. This flying represented 22.5 percent of Horizon's capacity during the second quarter and 9.6 percent of its passenger revenues. Horizon's pretax income for the quarter was $4.7 million, compared to a pretax income of $15.7 million in 2003. Excluding the notable items referenced above, Horizon's pretax income was $2.4 million for the quarter compared to a pretax loss of $2.9 million in 2003.

Alaska Air Group had cash and short-term investments at June 30, 2004 of approximately $865 million compared to $812 million at December 31, 2003. The company's debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 79 percent as of June 30, 2004 compared to 77 percent as of December 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 on pages 6 to 10.

A conference call regarding the second quarter 2004 results will be simulcast via the internet at 8:30 a.m. Pacific Daylight 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 future financial performance and involve known and unknown risks and uncertainties that may cause 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 actual results to differ from expectations are: economic conditions; the continued impact of terrorist attacks, global instability and potential U.S. military involvement; the company's significant indebtedness; downgrades of the company's credit ratings; the competitive environment and other trends in the company's industry; changes in laws and regulations; changes in the company's operating costs including fuel; changes in the company's business plans; interest rates and the availability of financing; liability and other claims asserted against the company; labor disputes; the company's ability to attract and retain qualified personnel; and inflation. For a discussion of these and other risk factors, see Item 1 of the company's Annual Report on Form 10-K/A for the year ended December 31, 2003. 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. The company operates 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 the company's business or events described in any forward-looking statements. The company disclaims 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        Six Months
                                          Ended June 30      Ended June 30

                                          2003    2004      2003      2004
  Operating Revenues:
  Passenger                              $556.9  $637.4  $1,032.4  $1,190.7
  Freight and mail                         22.4    24.2      41.0      42.8
  Other -- net                             31.3    37.1      55.9      63.6
  Total Operating Revenues                610.6   698.7   1,129.3   1,297.1

  Operating Expenses:
  Wages and benefits                      232.5   244.6     459.6     486.9
  Contracted services                      24.4    33.4      50.1      60.5
  Aircraft fuel                            83.5   128.6     173.7     236.4
  Aircraft maintenance                     51.9    50.1      97.8     100.9
  Aircraft rent                            49.4    47.0      96.9      94.8
  Food and beverage service                15.6    13.6      29.0      25.2
  Other selling expenses and commissions   32.5    35.6      63.0      74.0
  Depreciation and amortization            33.1    34.0      65.5      70.1
  Loss on sale of assets                     --     1.0       0.1       1.4
  Landing fees and other rentals           40.2    45.4      77.3      88.2
  Other                                    46.9    48.8      94.3      98.2
  Impairment of aircraft and spare
   engines                                   --    37.2        --      39.6
  Total Operating Expenses                610.0   719.3   1,207.3   1,376.2
  Operating Income (Loss)                   0.6   (20.6)    (78.0)    (79.1)

  Nonoperating Income (Expense):
  Interest income                           5.4     6.1       6.0      10.7
  Interest expense                        (14.2)  (12.6)    (25.3)    (25.3)
  Interest capitalized                      0.7     0.3       1.5       0.6
  U.S. government compensation             71.4      --      71.4        --
  Other - net                               8.9    26.1       9.3      26.2
                                           72.2    19.9      62.9      12.2
  Income (loss) before income tax          72.8    (0.7)    (15.1)    (66.9)
  Income tax expense (benefit)             27.6     1.0      (4.0)    (22.5)
  Net Income (Loss)                       $45.2   ($1.7)   ($11.1)   ($44.4)


  Basic and Diluted Earnings (Loss) Per
   Share:
  Earnings (Loss) Per Share               $1.70  $(0.06)   $(0.42)   $(1.66)

  Shares used for computation:
    Basic                                26.618  26.818    26.600    26.798
    Diluted                              26.619  26.818    26.600    26.798


                           Alaska Air Group, Inc.

  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

                                                 December 31,       June 30,
  (In Millions)                                     2003              2004

  Cash and marketable securities                    $812              $865

  Total current assets                            $1,148            $1,253
  Property and equipment-net                       1,949             1,919
  Other assets                                       162               190
  Total assets                                    $3,259            $3,362

  Current liabilities                             $1,017            $1,033
  Long-term debt and capital lease obligations       907             1,003
  Other liabilities and credits                      661               690
  Shareholders' equity                               674               636
  Total liabilities and equity                    $3,259            $3,362


               Alaska  Airlines Financial and Statistical Data

                       Three Months Ended June 30   Six Months Ended June 30

  Financial Data (in                          %                          %
   millions):             2003    2004     Change   2003     2004     Change
  Operating Revenues:
  Passenger             $460.6  $519.9     12.9%  $847.6   $969.2     14.3%
  Freight and mail        21.0    23.1     10.0%    38.4     40.8      6.3%
  Other -- net            29.0    34.6     19.3%    51.6     58.9     14.1%
  Total Operating
   Revenues              510.6   577.6     13.1%   937.6  1,068.9     14.0%

  Operating Expenses:
  Wages and benefits     192.0   203.7      6.1%   380.0    404.5      6.4%
  Contracted services     19.7    29.4     49.2%    40.4     52.5     30.0%
  Aircraft fuel           72.0   112.6     56.4%   148.9    206.2     38.5%
  Aircraft maintenance    44.6    40.7     -8.7%    82.5     84.2      2.1%
  Aircraft rent           31.2    27.9    -10.6%    61.7     57.4     -7.0%
  Food and beverage
   service                14.9    13.0    -12.8%    27.8     24.2    -12.9%
  Other selling
   expenses and
   commissions            35.5    31.3    -11.8%    65.6     65.2     -0.6%
  Depreciation and
   amortization           29.6    30.4      2.7%    58.1     63.2      8.8%
  Loss on sale of
   assets                  0.2     1.1        NM     0.5      1.9        NM
  Landing fees and
   other rentals          31.2    35.3     13.1%    59.9     68.5     14.4%
  Other                   34.3    37.0      7.9%    68.4     73.9      8.0%
  Impairment of
   aircraft                 --    36.8    100.0%      --     36.8    100.0%
  Total Operating
   Expenses              505.2   599.2     18.6%   993.8  1,138.5     14.6%

  Operating Income
   (Loss)                  5.4   (21.6)       NM   (56.2)   (69.6)       NM

  Interest income          4.5     6.3               5.7     11.6
  Interest expense       (11.4)  (10.7)            (22.7)   (21.5)
  Interest capitalized     0.4     0.2               1.1      0.3
  U.S. government
   compensation           52.8      --              52.8       --
  Other -- net             7.9    23.0               8.3     23.2
                          54.2    18.8              45.2     13.6

  Income (Loss) Before
   Income Tax            $59.6   $(2.8)       NM  $(11.0)  $(56.0)       NM

  Operating Statistics:
  Revenue passengers
   (000)                 3,797   4,116      8.4%   7,055    7,707      9.2%
  RPMs (000,000)         3,678   4,104     11.6%   6,821    7,684     12.7%
  ASMs (000,000)         5,209   5,635      8.2%   9,918   10,813      9.0%
  Passenger load factor  70.6%   72.8%   2.2 pts   68.8%    71.1%   2.3 pts
  Breakeven load
   factor, excluding
   impairment charge     70.2%   68.5%  -1.7 pts   74.9%    73.3%  -1.6 pts
  Yield per passenger
   mile (in cents)       .1252   .1267     1.2%    .1243    12.61      1.4%
  Operating revenue per
   ASM (in cents)         9.80   10.25      4.6%    9.45     9.89      4.7%
  Operating expenses
   per ASM (in cents)(a)  9.70   10.63      9.6%   10.02    10.53      5.1%
  Operating expenses
   per ASM excluding
   fuel and impairment
   charge (in cents) (a)  8.32    7.98     -4.1%    8.52     8.28     -2.8%
  Fuel cost per gallon
   (in cents)(a)          85.4   126.7     48.4%    92.0    120.0     30.4%
  Fuel cost per gallon
   excluding all
   hedging activities
   (in cents)(a)          91.1   131.6     44.5%    98.0    124.4     26.9%
  Economic fuel cost
   per gallon
   (in cents)(a)          82.0   123.1     50.1%    90.2    118.2     31.0%
  Fuel gallons
   (000,000)              84.3    88.9      5.5%   161.9    171.8      6.1%
  Average number of
   employees            10,136  10,255      1.2%  10,062   10,120      0.6%
  Aircraft utilization
   (blk hrs/day)          10.5    11.1      5.7%    10.4     10.7      2.9%
  Operating fleet at
   period-end              110     108     -1.8%     110      108     -1.8%

  NM = Not Meaningful

  (a) See Note A


                  Horizon Air Financial and Statistical Data

                             Three Months Ended        Six Months Ended
                                   June 30                  June 30
  Financial Data (in                            %                        %
   millions):               2003    2004     Change   2003    2004    Change
  Operating Revenues:
  Passenger               $105.6  $119.9     13.5%  $199.6  $225.9    13.2%
  Freight and mail           1.4     1.1    -21.4%     2.6     2.0   -23.1%
  Other -- net               3.7     3.7      0.0%     7.4     7.1    -4.1%
  Total Operating
   Revenues                110.7   124.7     12.6%   209.6   235.0    12.1%

  Operating Expenses:
  Wages and benefits        40.5    40.9      1.0%    79.6    82.4     3.5%
  Contracted services        6.1     5.2    -14.8%    12.7    10.4   -18.1%
  Aircraft fuel             11.5    16.0     39.1%    24.8    30.2    21.8%
  Aircraft maintenance       7.3     9.4     28.8%    15.3    16.7     9.2%
  Aircraft rent             18.2    19.1      4.9%    35.2    37.4     6.3%
  Food and beverage
   service                   0.7     0.6    -14.3%     1.2     1.0   -16.7%
  Other selling expenses
   and commissions           6.3     6.7      6.3%    12.2    13.2     8.2%
  Depreciation and
   amortization              3.2     3.3      3.1%     6.8     6.3    -7.4%
  Gain on sale of assets    (0.2)   (0.1)       NM    (0.4)   (0.5)      NM
  Landing fees and other
   rentals                   9.2    10.3     12.0%    17.9    20.2    12.8%
  Other                     11.4    10.8     -5.3%    22.9    22.3    -2.6%
  Impairment of aircraft
   and spare engines          --     0.4    100.0%      --     2.8   100.0%
  Total Operating
   Expenses                114.2   122.6      7.4%   228.2   242.4     6.2%

  Operating (Income) Loss   (3.5)    2.1        NM   (18.6)   (7.4)      NM

  Interest income            0.1     0.4               0.3     0.6
  Interest expense          (0.8)   (1.0)             (1.3)   (2.3)
  Interest capitalized       0.3     0.1               0.4     0.3
  Government compensation   18.6      --              18.6      --
  Other -- net               1.0     3.1               1.0     3.1
                            19.2     2.6              19.0     1.7

  Income (Loss) Before
   Income Tax              $15.7    $4.7        NM    $0.4   $(5.7)      NM

  Operating Statistics:
  Revenue passengers
   (000)                   1,207   1,454     20.5%   2,295   2,721    18.6%
  RPMs (000,000)             400     535     33.8%     758     985    29.9%
  ASMs (000,000)             633     792     25.1%   1,248   1,484    18.9%
  Passenger load factor    63.3%   67.5%   4.2 pts   60.7%   66.4%  5.7 pts
  Breakeven load factor,
   excluding impairment
   charge                  65.3%   65.0%  -0.3 pts   66.8%   66.9%  0.1 pts
  Yield per passenger
   mile (in cents)        26.40   22.42    -15.1%   26.33   22.94    -12.9%
  Operating revenue per
   ASM (in cents)         17.49   15.75     -9.9%   16.79   15.84     -5.7%
  Operating expenses per
   ASM (in cents)(a)      18.04   15.49    -14.1%   18.29   16.34    -10.7%
  Operating expenses per
   ASM excluding fuel and
   impairment charge
   (in cents)(a)          16.22   13.43    -17.2%   16.30   14.12    -13.4%
  Fuel cost per gallon
   (in cents)(a)           87.8   131.1     49.3%    95.0   124.3     30.8%
  Fuel cost per gallon
   excluding all hedging
   activities
   (in cents)(a)           88.5   136.1     53.8%   101.5   128.4     26.5%
  Economic fuel cost per
   gallon (in cents)(a)    83.5   127.1     52.2%    92.7   122.8     32.5%
  Fuel gallons (000,000)   13.1    12.2     -6.9%    26.1    24.3     -6.9%
  Average number of
   employees              3,342   3,414      2.2%   3,378   3,379      0.0%
  Aircraft utilization
   (blk hrs/day)            7.8     8.4      7.7%     7.8     8.0      2.6%
  Operating fleet at
   period-end                59      64      8.5%      59      64      8.5%

  NM = Not Meaningful

  (a) See Note A


   Note A:
   Pursuant to Item 10 of Regulation S-K, we are providing disclosure of the
   reconciliation of reported non-GAAP financial measures to their most
   directly comparable financial measures reported on a GAAP basis.  The
   non-GAAP financial measures provide management the ability to measure and
   monitor our performance both with and without the cost of aircraft fuel
   (including the impact of our fuel hedging program where appropriate), the
   impairment charge related to Alaska's 737-200 aircraft and Horizon's F-28
   aircraft and spare engines, government compensation and mark-to-market
   hedging gains recorded during the second quarter of 2004.  Because the
   cost and availability of aircraft fuel are subject to many economic and
   political factors beyond our control, 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
   charges, government compensation and mark-to-market hedging gains is
   useful to investors in evaluating our ongoing operational performance.
   Finally, these non-GAAP financial measures are also more comparable to
   financial measures reported to the Department of Transportation by other
   major network airlines.
   The following tables reconcile our non-GAAP financial measures to the
   most directly comparable GAAP financial measures for both Alaska
   Airlines, Inc. and Horizon Air Industries, Inc.:


  Alaska Airlines, Inc.:
                                         Three Months      Six Months
  ($ in millions)                           Ended            Ended
                                           June 30,         June 30,
  Unit cost reconciliations:             2003    2004    2003      2004
  Operating expenses                    $505.2  $599.2  $993.8  $1,138.5
  ASMs (000,000)                         5,209   5,635   9,918    10,813
  Operating expenses per ASM
   (in cents)                             9.70   10.63   10.02     10.53

  Operating expenses                    $505.2  $599.2  $993.8  $1,138.5
  Less: aircraft fuel                    (72.0) (112.6) (148.9)   (206.2)
  Less: impairment of aircraft              --   (36.8)     --     (36.8)
  Operating expense excluding fuel and
   impairment charge                    $433.2  $449.8  $844.9    $895.5
  ASMs (000,000)                         5,209   5,635   9,918    10,813
  Operating expense per ASM excluding
   fuel and impairment charge
   (in cents)                             8.32    7.98    8.52      8.28

  Aircraft fuel reconciliations:
  Aircraft fuel                          $72.0  $112.6  $148.9    $206.2
  Fuel gallons (000,000)                  84.3    88.9   161.9     171.8
  Fuel cost per gallon (GAAP basis)
   (in cents)                             85.4   126.7    92.0     120.0

  Aircraft fuel                          $72.0  $112.6  $148.9    $206.2
  Add: hedging gains included in
   aircraft fuel                           4.8     4.4     9.7       7.5
  Aircraft fuel excluding all hedging
   gains                                 $76.8  $117.0  $158.6    $213.7
  Fuel gallons (000,000)                  84.3    88.9   161.9     171.8
  Fuel cost per gallon excluding all
   hedging activities (in cents)          91.1   131.6    98.0     124.4

  Aircraft fuel                          $72.0  $112.6  $148.9    $206.2
  Less: Gains on settled hedges
   included in nonoperating

   income (expense)                       (2.9)   (3.2)   (2.9)     (3.2)
  Adjusted fuel                           69.1   109.4   146.0     203.0
  Fuel gallons (000,000)                  84.3    88.9   161.9     171.8
  Economic fuel cost per gallon
   (in cents)                             82.0   123.1    90.2     118.2

  Reconciliation to GAAP pretax income
   (loss):
  Pretax income (loss) excluding
   impairment charge, government

   comp and mark-to-market hedging
   gains                                  $6.8   $14.4  ($63.8)   ($39.3)
  Less: impairment of aircraft and
   related spare parts                      --   (36.8)     --     (36.8)
  Add: government compensation            52.8      -     52.8        --
  Add: mark-to-market hedging gains
   included
   in nonoperating
   income (expense)                         --    19.6      --      20.1
  Pretax income (loss) reported GAAP
   amounts                               $59.6   ($2.8) ($11.0)   ($56.0)


   Horizon Air Industries, Inc.
                                           Three Months       Six Months
                                              Ended             Ended
   ($ in millions)                           June 30,          June 30,

  Unit cost reconciliations:              2003     2004     2003     2004
  Operating expenses                     $114.2   $122.6   $228.2   $242.4
  ASMs (000,000)                            633      792    1,248    1,484
  Operating expenses per ASM
   (in cents)                             18.04    15.49    18.29    16.34

  Operating expenses                     $114.2   $122.6   $228.2   $242.4
  Less: aircraft fuel                     (11.5)   (16.0)   (24.8)   (30.2)
  Less: impairment of aircraft               --     (0.4)      --     (2.8)
  Operating expense excluding fuel and
   impairment charge                     $102.7   $106.2   $203.4   $209.4
  ASMs (000,000)                            633      792    1,248    1,484
  Operating expense per ASM excluding
   fuel and impairment charge
   (in cents)                             16.22    13.43    16.30    14.12

  Aircraft fuel reconciliations:
  Aircraft fuel                           $11.5    $16.0    $24.8    $30.2
  Fuel gallons (000,000)                   13.1     12.2     26.1     24.3
  Fuel cost per gallon (GAAP basis)
   (in cents)                              87.8    131.1     95.0    124.3

  Aircraft fuel                           $11.5    $16.0    $24.8    $30.2
  Add: hedging gains included in
   aircraft fuel                            0.1      0.6      1.7      1.0
  Aircraft fuel excluding all hedging
   gains                                  $11.6    $16.6    $26.5    $31.2
  Fuel gallons (000,000)                   13.1     12.2     26.1     24.3
  Fuel cost per gallon excluding all
   hedging activities (in cents)           88.5    136.1    101.5    128.4

  Aircraft fuel                           $11.5    $16.0    $24.8    $30.2
  Less: Gains on settled hedges
   included in nonoperating

   income (expense)                        (0.5)    (0.4)    (0.5)    (0.4)
  Adjusted fuel                            11.0     15.6     24.3     29.8
  Fuel gallons (000,000)                   13.1     12.2     26.1     24.3
  Economic fuel cost per gallon
   (in cents)                              83.5    127.1     92.7    122.8

  Reconciliation to GAAP pretax income
   (loss):
  Pretax income (loss) excluding
   impairment charge, government

   comp and mark-to-market hedging
   gains                                  ($2.9)    $2.4   ($18.2)   ($5.6)
  Less: impairment of aircraft and
   related spare parts                       --     (0.4)      --     (2.8)
  Add: government compensation             18.6       -      18.6       --
  Add: mark-to-market hedging gains
   included
   in nonoperating
   income (expense)                          --      2.7       --      2.7
  Pretax income (loss) reported GAAP
   amounts                                $15.7     $4.7     $0.4    ($5.7)


  Air Group Net Income (Loss) and EPS Reconciliation:

  The following table summarizes Alaska Air Group, Inc.'s net earnings
  (loss) and diluted income (loss) per share during 2003 and 2004 excluding
  impairment charges, the second quarter of 2004 hedging mark-to-market
  gain of $22.3 million ($14.8 million, net of tax), government
  compensation and as reported in accordance with GAAP (in millions except
  per share amounts):

                                             Three Months Ended June 30,
                                                2003              2004
                                         Dollars    EPS    Dollars    EPS
  Net income (loss) and diluted EPS
   excluding government compensation
   and impairment charge                   $0.9    $0.04     $8.2    $0.31
  Government compensation, net of tax      44.3     1.66       --       --
  Mark-to-market hedging gains, net of
   tax                                       --       --     14.8    $0.55
  Impairment charge, net of tax              --       --    (24.7)   (0.92)
  Reported GAAP amounts                   $45.2    $1.70    ($1.7)  ($0.06)


                                             Six Months Ended June 30,
                                               2003              2004
                                        Dollars    EPS    Dollars    EPS
  Net loss and diluted EPS excluding
   government compensation and
   impairment charge                     ($55.4)  ($2.09)  ($33.2)  ($1.24)
  Government compensation, net of tax      44.3     1.67       --       --
  Mark-to-market hedging gains, net of
   tax                                       --       --     15.1    $0.56
  Impairment charge, net of tax              --       --    (26.3)   (0.98)
  Reported GAAP amounts                  ($11.1)  ($0.42)  ($44.4)  ($1.66)

SOURCE: Alaska Airlines