Alaska Air Group Reports Third Quarter Results

Alaska Air Group, Inc. today reported third quarter 2009 net income of $87.6 million, or $2.46 per diluted share, compared to a net loss of $86.5 million, or $2.40 per diluted share, in the third...

Alaska Air Group, Inc. today reported third quarter 2009 net income of $87.6 million, or $2.46 per diluted share, compared to a net loss of $86.5 million, or $2.40 per diluted share, in the third quarter of 2008. Excluding mark-to-market fuel hedge gains of $7.3 million ($4.6 million after tax or $0.13 per diluted share), the company reported net income of $83.0 million, or $2.33 per diluted share, compared to net income of $39.9 million, or $1.10 per diluted share, excluding mark-to-market fuel hedge losses and other special items in the third quarter of 2008.

"Our work to reduce capacity to better match demand, redeploy aircraft into promising new markets, and achieve record operational reliability contributed to our best quarterly financial performance in many years," said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. "My thanks to our people for taking excellent care of customers and for their relentless efforts to improve our business."

The following table reconciles the company’s adjusted net income and earnings per diluted share (EPS) during the third quarters of 2009 and 2008 to the most directly related amounts as reported in accordance with GAAP (in millions except per-share amounts):

                                        Three months ended Sept. 30,
                                 -----------------------------------------
                                          2009                  2008
                                          ----                  ----
                                               Diluted             Diluted
                                  Dollars        EPS    Dollars      EPS
  ---------------------------    --------      -------  --------   -------
  Net income and diluted EPS,
   excluding special items        $83.0         $2.33    $39.9      $1.10
  Change in Mileage Plan
   terms, net of tax                ---           ---     26.5       0.73
  Restructuring charges, net
   of tax                           ---           ---     (2.3)     (0.06)
  Fleet transition costs -
   MD-80, net of tax                ---           ---    (13.5)     (0.37)
  Fleet transition costs -
   CRJ-700, net of tax              ---           ---     (0.4)     (0.01)
  Adjustments to reflect the
   timing of gain recognition
   resulting from
   mark-to-market fuel-hedge
   accounting, net of tax           4.6          0.13   (136.7)     (3.79)
                                    ---          ----  -------      -----
  Reported GAAP amounts           $87.6         $2.46   $(86.5)    $(2.40)
                                  =====         =====  =======     ======

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 third quarter 2009 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Oct. 22, 2009. 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. 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.

                           Alaska Air Group, Inc.

  CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


                                        Three Months       Nine Months
                                           Ended              Ended
                                        September 30,     September 30,
                                       --------------   ----------------
  (in millions, except per share
   amounts)                             2009     2008      2009      2008
                                        ----     ----      ----      ----
  Operating Revenues:
  Passenger                           $884.8   $952.8  $2,326.1  $2,592.0
  Freight and mail                      27.7     30.5      72.3      80.4
  Other - net                           54.9     39.6     155.3     120.8
  Change in Mileage Plan terms             -     42.3         -      42.3
                                         ---     ----       ---      ----
  Total Operating Revenues             967.4  1,065.2   2,553.7   2,835.5
                                       -----  -------   -------   -------

  Operating Expenses:
  Wages and benefits                   246.2    232.1     739.3     711.2
  Variable incentive pay                24.0      6.3      52.2      15.0
  Aircraft fuel, including hedging
   gains and losses                    199.5    575.6     485.6   1,039.6
  Aircraft maintenance                  49.7     47.4     169.0     159.6
  Aircraft rent                         38.3     40.2     115.4     126.1
  Landing fees and other rentals        57.3     56.8     165.9     169.7
  Contracted services                   37.4     40.2     112.6     128.3
  Selling expenses                      37.0     41.7      97.3     120.3
  Depreciation and amortization         55.6     52.1     162.3     152.9
  Food and beverage service             12.7     13.5      36.7      39.2
  Other                                 51.1     52.7     158.2     171.4
  New pilot contract transition costs      -        -      35.8         -
  Restructuring charges                    -      3.7         -       3.7
  Fleet transition costs - MD-80           -     21.5         -      47.5
  Fleet transition costs - CRJ-700         -      0.7         -       6.8
  Fleet transition costs - Q200         (1.2)     0.7       8.8       9.7
                                        ----      ---       ---       ---
  Total Operating Expenses             807.6  1,185.2   2,339.1   2,901.0
                                       -----  -------   -------   -------
  Operating Income (Loss)              159.8   (120.0)    214.6     (65.5)
                                       -----   ------     -----     -----

  Nonoperating Income (Expense):
  Interest income                        8.3     10.7      24.4      31.5
  Interest expense                     (25.9)   (25.9)    (77.8)    (74.3)
  Interest capitalized                   1.4      5.9       6.0      18.5
  Other - net                           (0.8)    (3.7)     (6.3)     (3.4)
                                        ----     ----      ----      ----
                                       (17.0)   (13.0)    (53.7)    (27.7)
                                       -----    -----     -----     -----
  Income (loss) before income tax      142.8   (133.0)    160.9     (93.2)
  Income tax expense (benefit)          55.2    (46.5)     63.4     (32.5)
                                        ----    -----      ----     -----
  Net Income (Loss)                    $87.6   $(86.5)    $97.5    $(60.7)
                                       =====   ======     =====    ======

  Basic Earnings (Loss) Per Share:     $2.48   $(2.40)    $2.71    $(1.67)
  Diluted Earnings (Loss) Per Share:   $2.46   $(2.40)    $2.69    $(1.67)
  Shares Used for Computation:
  Basic                               35.275   36.069    35.981    36.383
  Diluted                             35.681   36.069    36.292    36.383



                           Alaska Air Group, Inc.

  CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

                                                ------------- ------------
                                                September 30, December 31,
  (in millions)                                          2009         2008
  -------------                                 ------------- ------------

  Cash and marketable securities                       $1,230       $1,077
                                                       ======       ======

  Total current assets                                  1,686        1,509
  Property and equipment-net                            3,136        3,168
  Other assets                                            184          159
                                                          ---          ---
  Total assets                                         $5,006       $4,836
                                                       ======       ======

  Current liabilities                                  $1,282       $1,361
  Long-term debt                                        1,658        1,596
  Other liabilities and credits                         1,292        1,217
  Shareholders' equity                                    774          662
                                                          ---          ---
  Total liabilities and shareholders' equity           $5,006       $4,836
                                                       ======       ======

  Debt to Capitalization, adjusted for
   operating leases                                   78%:22%      81%:19%
                                                       ======       ======

  Number of common shares outstanding                  35.251       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 September 30,
                               --------------------------------
                                2009                  2008
                               ------                ------
                          Dollars  Diluted EPS  Dollars  Diluted EPS
                          -------  -----------  -------  -----------
  Net income and diluted
   EPS, excluding the
   items noted below        $83.0        $2.33    $39.9        $1.10
  Change in Mileage Plan
   terms, net of tax            -            -     26.5         0.73
  Restructuring
   charges, net of tax          -            -     (2.3)       (0.06)
  Fleet transition costs
   - MD-80, net of tax          -            -    (13.5)       (0.37)
  Fleet transition costs
   - CRJ-700, net of tax        -            -     (0.4)       (0.01)
  Adjustments to reflect
   the timing of gain or loss
   recognition resulting
   from mark-to-market
   fuel hedge accounting,
   net of tax                 4.6         0.13   (136.7)       (3.79)
                              ---         ----   ------        -----
  Reported GAAP amounts     $87.6        $2.46   $(86.5)      $(2.40)
                            =====        =====   ======       ======


                                Nine Months Ended September 30,
                               --------------------------------
                                2009                  2008
                               ------                ------
                          Dollars  Diluted EPS  Dollars  Diluted EPS
                          -------  -----------  -------  -----------
  Net income (loss) and
   diluted EPS,
   excluding the items
   noted below              $84.1        $2.32   $(12.0)      $(0.33)
  Change in Mileage Plan
   terms, net of tax            -            -     26.5         0.73
  New pilot contract
   transition costs,
   net of tax               (22.3)       (0.61)       -            -
  Restructuring
   charges, net of tax          -            -     (2.3)       (0.06)
  Fleet transition costs
   - MD-80, net of tax          -            -    (29.8)       (0.82)
  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                35.7         0.98    (38.9)       (1.07)
                             ----         ----    -----        -----
  Reported GAAP amounts     $97.5        $2.69   $(60.7)      $(1.67)
                            =====        =====   ======       ======



                Alaska Airlines Financial and Statistical Data

                        Three Months Ended          Nine Months Ended
                           September 30,               September 30,
                      ----------------------      ------------------------
  Financial Data                         %                             %
   (in millions):     2009     2008   Change      2009      2008    Change
                      ----     ----  -------      ----      ----   -------
  Operating
   Revenues:
  Passenger         $702.0   $751.2     (6.5) $1,844.3  $2,041.2      (9.6)
  Freight and mail    26.5     29.2     (9.2)     69.0      77.1     (10.5)
  Other - net         48.4     33.5     44.5     136.5     101.2      34.9
  Change in
   Mileage Plan
   terms                 -     42.3       NM         -      42.3        NM
                       ---     ----                ---      ----
  Total mainline
   operating
   revenues          776.9    856.2     (9.3)  2,049.8   2,261.8      (9.4)
  Passenger -
   purchased
   capacity           81.9     85.7     (4.4)    211.4     233.9      (9.6)
                      ----     ----              -----     -----
  Total Operating
   Revenues          858.8    941.9     (8.8)  2,261.2   2,495.7      (9.4)
                     -----    -----            -------   -------


  Operating
   Expenses:
  Wages and
   benefits          199.1    182.5      9.1     594.9     558.9       6.4
  Variable
   incentive pay      20.8      4.9    324.5      44.0      10.8     307.4
  Aircraft fuel,
   including
   hedging gains
   and losses        166.6    479.1    (65.2)    405.9     864.0     (53.0)
  Aircraft
   maintenance        36.5     32.6     12.0     129.4     112.1      15.4
  Aircraft rent       27.2     26.3      3.4      81.8      82.4      (0.7)
  Landing fees and
   other rentals      43.0     42.3      1.7     124.4     126.9      (2.0)
  Contracted
   services           29.7     31.9     (6.9)     88.6     100.5     (11.8)
  Selling expenses    29.4     33.1    (11.2)     76.8      95.6     (19.7)
  Depreciation and
   amortization       45.1     42.8      5.4     132.6     123.2       7.6
  Food and
   beverage
   service            12.0     12.8     (6.3)     34.9      37.1      (5.9)
  Other               38.0     41.0     (7.3)    119.3     130.2      (8.4)
  New pilot
   contract
   transition costs      -        -       NM      35.8         -        NM
  Restructuring
   charges               -      3.7       NM         -       3.7        NM
  Fleet transition
   costs - MD-80         -     21.5       NM         -      47.5        NM
                       ---     ----                ---      ----
  Total mainline
   operating
   expenses          647.4    954.5    (32.2)  1,868.4   2,292.9     (18.5)
                     -----    -----            -------   -------
  Purchased
   capacity costs     74.7     85.6    (12.7)    206.3     246.8     (16.4)
                      ----     ----              -----     -----
  Total Operating
   Expenses          722.1  1,040.1    (30.6)  2,074.7   2,539.7     (18.3)
                     -----  -------            -------   -------

  Operating Income
   (Loss)            136.7    (98.2)             186.5     (44.0)
                     -----    -----              -----     -----

  Interest income      9.6     12.8               29.2      38.2
  Interest expense   (22.4)   (23.5)             (67.5)    (67.5)
  Interest
   capitalized         1.4      4.8                5.7      16.1
  Other - net         (0.5)    (3.3)              (5.3)     (2.7)
                      ----     ----               ----      ----
                     (11.9)    (9.2)             (37.9)    (15.9)
                     -----     ----              -----     -----

  Income (Loss)
   Before Income
   Tax              $124.8  $(107.4)            $148.6    $(59.9)
                    ======  =======             ======    ======

  Mainline
   Operating
   Statistics:
  Revenue
   passengers (000)  4,240    4,532     (6.4)   11,796    13,037      (9.5)
  RPMs (000,000)
   "traffic"         5,020    5,012      0.2    13,812    14,410      (4.1)
  ASMs (000,000)
   "capacity"        6,097    6,306     (3.3)   17,469    18,628      (6.2)
  Passenger load
   factor             82.3%    79.5%  2.8pts      79.1%     77.4%   1.7pts
  Yield per
   passenger mile
   (in cents)        13.98    14.99     (6.7)    13.35     14.17      (5.8)
  Operating
   revenue per
   ASM "RASM"
   (in cents)        12.74    13.58     (6.2)    11.73     12.14      (3.4)
  Change in
   Mileage Plan
   terms per ASM
   (in cents)         0.00     0.67       NM      0.00      0.23        NM
                      ----     ----               ----      ----
  RASM excluding
   change in
   Mileage Plan
   terms (in cents)  12.74    12.91     (1.3)    11.73     11.91      (1.5)
  Passenger
   revenue per ASM
   (in cents)        11.51    11.91     (3.4)    10.56     10.96      (3.6)
  Operating
   expense per ASM
   (in cents)        10.62    15.14    (29.9)    10.70     12.31     (13.1)
  Operating
   expense per
   ASM excluding
   fuel,
   restructuring
   charges and
   fleet
   transition
   costs
   (in cents) (a)     7.89     7.14     10.5      8.17      7.40      10.4
  GAAP fuel cost
   per gallon        $2.07    $5.57    (62.8)    $1.77     $3.34     (47.0)
  Economic fuel
   cost per gallon
   (b)               $2.15    $3.47    (38.0)    $1.98     $3.14     (36.9)
  Fuel gallons
   (000,000)          80.1     86.0     (6.9)    229.9     258.3     (11.0)
  Average number
   of full-time
   equivalent
   employees         9,002    9,594     (6.2)    8,987     9,785      (8.2)
  Aircraft
   utilization
   (blk hrs/day)       9.9     10.8     (8.3)      9.9      10.8      (8.3)
  Average aircraft
   stage length
   (miles)           1,044      981      6.4     1,027       975       5.3
  Operating fleet
   at period-end       116      110    6 a/c       116       110     6 a/c

  Regional
   Operating
   Statistics:
  RPMs (000,000)       298      304     (2.0)      777       873     (11.0)
  ASMs (000,000)       383      391     (2.0)    1,058     1,153      (8.2)
  Passenger load
   factor             77.8%    77.7%  0.1pts      73.4%     75.7% (2.3)pts
  Yield per
   passenger mile
   (in cents)        27.48    28.19     (2.5)    27.21     26.79       1.6
  Operating
   revenue per ASM
   (in cents)        21.38    21.92     (2.5)    19.98     20.29      (1.5)
  Operating
   expenses per ASM
   (in cents)        19.50    21.89    (10.9)    19.50     21.41      (8.9)

  NM = Not Meaningful


  (a) See page 9 for a reconciliation of these non-GAAP measures and a
      discussion about why these measures may be important to investors.
  (b) See page 11 for a reconciliation of economic fuel cost.



                  Horizon Air Financial and Statistical Data

                             Three Months Ended       Nine Months Ended
                                September 30,            September 30,
                          ----------------------   -------------------------
  Financial Data
   (in millions):         2009    2008   % Change  2009    2008    % Change
                          ----    ----   --------  ----    ----    ---------
  Operating Revenues:
  Passenger - brand
   flying               $105.4  $120.3     (12.4) $283.7  $330.7     (14.2)
  Passenger - Alaska
   capacity purchase
   arrangement            69.9    81.1     (13.8)  191.2   231.2     (17.3)
                          ----    ----             -----   -----
     Total passenger
      revenue            175.3   201.4     (13.0)  474.9   561.9     (15.5)
  Freight and mail         0.7     0.8     (12.5)    2.0     2.1      (4.8)
  Other - net              2.2     1.9      15.8     6.0     6.2      (3.2)
                           ---     ---               ---     ---
  Total Operating
   Revenues              178.2   204.1     (12.7)  482.9   570.2     (15.3)
                         -----   -----             -----   -----

  Operating Expenses:
  Wages and benefits      44.4    47.9      (7.3)  137.0   147.2      (6.9)
  Variable incentive
   pay                     3.2     1.4     128.6     8.2     4.2      95.2
  Aircraft fuel,
   including hedging
   gains and losses       32.9    96.5     (65.9)   79.7   175.6     (54.6)
  Aircraft maintenance    13.2    14.8     (10.8)   39.6    47.5     (16.6)
  Aircraft rent           11.1    13.9     (20.1)   33.6    43.7     (23.1)
  Landing fees and
   other rentals          14.6    14.7      (0.7)   42.4    43.6      (2.8)
  Contracted services      8.4     7.1      18.3    23.8    22.0       8.2
  Selling expenses         7.6     8.6     (11.6)   20.5    24.7     (17.0)
  Depreciation and
   amortization           10.2     9.0      13.3    28.8    28.8         -
  Food and beverage
   service                 0.7     0.7         -     1.8     2.1     (14.3)
  Other                    9.4     9.7      (3.1)   29.0    33.7     (13.9)
  Fleet transition
   costs - CRJ-700           -     0.7        NM       -     6.8        NM
  Fleet transition
   costs - Q200           (1.2)    0.7        NM     8.8     9.7        NM
                          ----     ---               ---     ---
  Total Operating
   Expenses              154.5   225.7     (31.5)  453.2   589.6     (23.1)
                         -----   -----             -----   -----

  Operating Income
   (Loss)                 23.7   (21.6)             29.7   (19.4)
                          ----   -----              ----   -----

  Interest income          0.5     1.1               1.5     3.8
  Interest expense        (5.1)   (5.5)            (16.2)  (16.9)
  Interest capitalized       -     1.0               0.3     2.3
  Other - net                -    (0.1)             (0.2)    0.1
                           ---    ----              ----     ---
                          (4.6)   (3.5)            (14.6)  (10.7)
                          ----    ----             -----   -----

  Income (Loss)
   Before Income Tax     $19.1  $(25.1)            $15.1  $(30.1)
                         =====  ======             =====  ======

  Combined Operating
   Statistics: (a)
  Revenue passengers
   (000)                 1,815   1,989      (8.7)  5,055   5,754     (12.1)
  RPMs (000,000)
   "traffic"               666     721      (7.6)  1,799   2,074     (13.3)
  ASMs (000,000)
   "capacity"              855     945      (9.5)  2,470   2,831     (12.8)
  Passenger load
   factor                 77.9%   76.3%   1.6pts    72.8%   73.3% (0.5)pts
  Yield per passenger
   mile (in cents)       26.32   27.93      (5.8)  26.40   27.09      (2.5)
  Operating revenue
   per ASM  (in cents)   20.84   21.60      (3.5)  19.55   20.14      (2.9)
  Passenger revenue
   per ASM  (in cents)   20.50   21.31      (3.8)  19.23   19.85      (3.1)
  Operating
   expenses per
   ASM  (in cents)       18.07   23.88     (24.3)  18.35   20.83     (11.9)
  Operating expense
   per ASM excluding
   fuel and CRJ-700
   fleet transition
   costs (b) (in cents)  14.22   13.60       4.6   15.12   14.38       5.1
  GAAP fuel cost per
   gallon                $2.11   $5.61     (62.4)  $1.76   $3.37     (47.8)
  Economic fuel cost
   per gallon (c)        $2.19   $3.45     (36.5)  $1.98   $3.18     (37.7)
  Fuel gallons
   (000,000)              15.6    17.2      (9.3)   45.1    52.1     (13.4)
  Average number of
   full-time equivalent
   employees             3,269   3,687     (11.3)  3,320   3,777     (12.1)
  Aircraft
   utilization (blk
   hrs/day)                8.4     8.5      (1.2)    8.3     8.4      (1.2)
  Average aircraft
   stage length
   (miles)                 334     325       2.8     326     324       0.6
  Operating fleet
   at period-end            55      63    (8 a/c)     55      63    (8 a/c)

  NM = Not Meaningful

  (a) Represents combined information for all Horizon flights, including
      those operated under a Capacity Purchase Agreement (CPA) with Alaska.
      See page 10 for additional line of business information.
  (b) See page 10 for a reconciliation of these non-GAAP measures and a
      discussion about why these measures may be important to investors.
  (c) See page 11 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 certain 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.


  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, except for per ASM unit information)

                            Three Months Ended  Nine Months Ended
                               September 30,      September 30,
                               -------------    -----------------
  Mainline unit cost
   reconciliations:            2009     2008      2009      2008
  ------------------           ----     ----      ----      ----
  Mainline operating
   expenses                   $647.4   $954.5  $1,868.4  $2,292.9
  Mainline ASMs                6,097    6,306    17,469    18,628
                               -----    -----    ------    ------

  Mainline operating
   expenses per ASM
   (in cents)                  10.62    15.14     10.70     12.31
                               =====    =====     =====     =====

  Mainline operating
   expenses                   $647.4   $954.5  $1,868.4  $2,292.9
  Less: aircraft fuel         (166.6)  (479.1)   (405.9)   (864.0)
  Less: new pilot
   contract transition
   costs                           -        -     (35.8)        -
  Less:
   restructuring
   charges                         -     (3.7)        -      (3.7)
  Less: fleet transition
   costs - MD-80                   -    (21.5)        -     (47.5)
                                 ---    -----       ---     -----
  Mainline operating
   expenses excluding fuel,
   restructuring charges
   and  fleet transition
   costs                      $480.8   $450.2  $1,426.7  $1,377.7
  Mainline ASMs                6,097    6,306    17,469    18,628
                               -----    -----    ------    ------
  Mainline operating
   expenses per ASM
   excluding fuel,
   restructuring charges
   and fleet transition
   costs (in cents)             7.89     7.14      8.17      7.40
                                ====     ====      ====      ====



                            Three Months Ended  Nine Months Ended
                               September 30,      September 30,
                               -------------    -----------------
  Reconciliation to
   GAAP income (loss)
   before taxes:                2009     2008      2009      2008
  -------------------           ----     ----      ----      ----
  Income before taxes,
   excluding items
   noted below                $118.7    $56.6    $137.0      $1.4
  Change in Mileage
   Plan terms                      -     42.3         -      42.3
  New pilot contract
   transition costs                -        -     (35.8)        -
  Restructuring charges            -     (3.7)        -      (3.7)
  Fleet transition
   costs - MD-80                   -    (21.5)        -     (47.5)
  Adjustments to reflect
   timing of gain or loss
   recognition resulting from
   mark-to-market
   accounting on fuel hedges     6.1   (181.1)     47.4     (52.4)
                                 ---   ------      ----     -----
  GAAP income (loss)
   before taxes as
   reported                   $124.8  $(107.4)   $148.6    $(59.9)
                              ======  =======    ======    ======



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

                          Three Months    Nine Months
                             Ended           Ended
                          September 30,   September 30,
                          -------------   -------------

  Unit cost
   reconciliations:        2009    2008    2009    2008
  -----------------        ----    ----    ----    ----
  Operating expenses     $154.5  $225.7  $453.2  $589.6
  ASMs                      855     945   2,470   2,831
                            ---     ---   -----   -----

  Operating expenses
   per ASM (in cents)     18.07   23.88   18.35   20.83
                          =====   =====   =====   =====

  Operating expenses     $154.5  $225.7  $453.2  $589.6
  Less: aircraft fuel     (32.9)  (96.5)  (79.7) (175.6)
  Less: fleet
   transition costs -
   CRJ-700                    -    (0.7)      -    (6.8)
                            ---    ----     ---    ----

  Operating expenses
   excluding fuel and
   CRJ-700 fleet
   transition costs      $121.6  $128.5  $373.5  $407.2
  ASMs                      855     945   2,470   2,831
                            ---     ---   -----   -----

  Operating expenses
   per ASM excluding
   fuel and CRJ-700
   fleet transition
   costs (in cents)       14.22   13.60   15.12   14.38
                          =====   =====   =====   =====

  Unit cost
   reconciliations-
   excluding all fleet
   transition costs:
  --------------------
  Operating expenses     $154.5  $225.7  $453.2  $589.6
  Less: aircraft fuel     (32.9)  (96.5)  (79.7) (175.6)
  Less: fleet
   transition costs -
   CRJ-700                    -    (0.7)      -    (6.8)
  Less: fleet
   transition costs -
   Q200                     1.2    (0.7)   (8.8)   (9.7)
                            ---    ----    ----    ----

  Operating expenses
   excluding fuel and
   all fleet transition
   costs                 $122.8  $127.8  $364.7  $397.5
  ASMs                      855     945   2,470   2,831
                            ---     ---   -----   -----

  Operating expenses
   per ASM excluding
   fuel and all fleet
   transition costs
   (in cents)             14.36   13.52   14.77   14.04
                          =====   =====   =====   =====

  Reconciliation to GAAP
   income (loss) before
   taxes:
  ----------------------
  Income (loss) before
   taxes, excluding mark-
   to-market fuel
   hedging gains
   (losses)
   and CRJ-700 fleet
   transition costs       $17.9   $12.7    $5.4  $(13.6)
  Fleet transition
   costs - CRJ-700            -    (0.7)      -    (6.8)
  Adjustments to reflect
   timing of gain or loss
   recognition resulting
   from mark-to-market
   accounting on fuel
   hedges                   1.2   (37.1)    9.7    (9.7)
                            ---   -----     ---    ----
  GAAP income (loss)
   before taxes as
   reported               $19.1  $(25.1)  $15.1  $(30.1)
                          =====  ======   =====  ======

  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 September 30, 2009
                        -------------------------------------

                           Capacity and Mix              Load Factor
                           ----------------            ---------------
                 2009      2008              Current            Point
                Actual    Actual    Change      %              Change
               (000,000) (000,000)  Y-O-Y     Total    Actual   Y-O-Y
               --------- --------- -------   --------  ------  -------
  Brand Flying       487       568   (14.3%)       57%   77.9%     2.9
  Alaska CPA         368       377    (2.4%)       43%   NM       NM
                     ---       ---    ----         --  ------   ------
  System Total       855       945    (9.5%)      100%   77.9%     1.6
                     ===       ===    ====        ===    ====      ===


                   Yield             RASM
                   ------            ----
                        Change           Change
               Actual   Y-O-Y   Actual   Y-O-Y
               ------  ------   ------  ------
  Brand Flying
   (in cents)   27.81    (1.5%)  22.26     2.9%
  Alaska CPA
   (in cents)    NM        NM    18.97   (11.8%)
               ------     ---    -----   -----
  System Total
   (in cents)   26.32    (5.8%)  20.84    (3.5%)
                =====    ====    =====    ====

  NM= Not Meaningful



                         Nine Months Ended September 30, 2009
                         ------------------------------------

                           Capacity and Mix              Load Factor
                           ----------------            ---------------
                 2009      2008              Current            Point
                Actual    Actual   Change       %              Change
               (000,000) (000,000)  Y-O-Y     Total    Actual   Y-O-Y
               --------- --------- -------   --------  ------  -------
  Brand Flying     1,463     1,736   (15.7%)       59%   72.1%     1.0
  Alaska CPA       1,007     1,095    (8.0%)       41%   NM        NM
                   -----     -----    ----         --  ------   ------
  System Total     2,470     2,831   (12.8%)      100%   72.8%    (0.5)
                   =====     =====   =====        ===    ====     ====


                   Yield              RASM
                   ------             ----
                       Change           Change
               Actual   Y-O-Y   Actual   Y-O-Y
               ------  ------   ------  ------
  Brand Flying
   (in cents)   26.90     0.4%   19.94     2.1%
  Alaska CPA
   (in cents)    NM        NM    18.98  (10.1%)
               ------      --    -----   -----
  System Total
   (in cents)   26.40    (2.5%)  19.55    (2.9%)
                =====    ====    =====    ====

  NM= Not Meaningful



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

                                         Three Months Ended September 30,
                                         --------------------------------
                                             2009               2008
                                             ----               ----
                                       Dollars  Cost/Gal  Dollars  Cost/Gal
                                       -------  --------  -------  --------
  Raw or "into-plane" fuel cost         $159.5     $1.99   $334.5     $3.89
  Minus gains, or plus the
   losses, during the period on
   settled hedges                         13.2      0.16    (36.5)    (0.42)
                                          ----      ----    -----     -----
  Economic fuel expense                 $172.7     $2.15   $298.0     $3.47
                                        ------     -----   ------     -----
  Adjustments to reflect
   timing of (gain) or loss recognition
   resulting from mark-to-market
   accounting                             (6.1)    (0.08)   181.1      2.10
                                          ----     -----    -----      ----
  GAAP fuel expense                     $166.6     $2.07   $479.1     $5.57
                                        ======     =====   ======     =====
  Fuel gallons                            80.1               86.0
                                          ====               ====

                                          Nine Months Ended September 30,
                                          -------------------------------
                                              2009               2008
                                              ----               ----
                                       Dollars  Cost/Gal  Dollars  Cost/Gal
                                       -------  --------  -------  --------
  Raw or "into-plane" fuel cost         $410.6     $1.79   $918.8     $3.56
  Minus gains, or plus the losses,
   during the period on
   settled hedges                         42.7      0.19   (107.2)    (0.42)
                                          ----      ----   ------     -----
  Economic fuel expense                 $453.3     $1.98   $811.6     $3.14
                                        ------     -----   ------     -----
  Adjustments to reflect timing of
   (gain) or loss recognition
   resulting from mark-to-market
   accounting                            (47.4)    (0.21)    52.4      0.20
                                         -----     -----     ----      ----
  GAAP fuel expense                     $405.9     $1.77   $864.0     $3.34
                                        ======     =====   ======     =====
  Fuel gallons                           229.9              258.3
                                         =====              =====



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

                                      Three Months Ended September 30,
                                      --------------------------------
                                          2009               2008
                                          ----               ----
                                    Dollars  Cost/Gal  Dollars  Cost/Gal
                                    -------  --------  -------  --------
  Raw or "into-plane" fuel cost       $31.4     $2.01    $66.9     $3.89
  Minus gains, or plus the losses,
   during the period on
   settled hedges                       2.7      0.18     (7.5)    (0.44)
                                        ---      ----     ----     -----
  Economic fuel expense               $34.1     $2.19    $59.4     $3.45
                                      -----     -----    -----     -----
  Adjustments to reflect timing of
   (gain) or loss recognition
   resulting from mark-to-market
   accounting                          (1.2)    (0.08)    37.1      2.16
                                       ----     -----     ----      ----
  GAAP fuel expense                   $32.9     $2.11    $96.5     $5.61
                                      =====     =====    =====     =====
  Fuel gallons                         15.6               17.2
                                       ====               ====

                                       Nine Months Ended September 30,
                                       -------------------------------
                                          2009               2008
                                          ----               ----
                                    Dollars  Cost/Gal  Dollars  Cost/Gal
                                    -------  --------  -------  --------
  Raw or "into-plane" fuel cost       $80.7     $1.79   $187.9     $3.61
  Minus gains, or plus the losses,
   during the period on
   settled hedges                       8.7      0.19    (22.0)    (0.43)
                                        ---      ----    -----     -----
  Economic fuel expense               $89.4     $1.98   $165.9     $3.18
                                      -----     -----   ------     -----
  Adjustments to reflect timing of
   (gain) or loss recognition
   resulting from mark-to-market
   accounting                          (9.7)    (0.22)     9.7      0.19
                                       ----     -----      ---      ----
  GAAP fuel expense                   $79.7     $1.76   $175.6     $3.37
                                      =====     =====   ======     =====
  Fuel gallons                         45.1               52.1
                                       ====               ====

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

SOURCE: Alaska Airlines

CONTACT: Media, Caroline Boren of Alaska Airlines, +1-206-392-5101; or
Dan Russo of Horizon Air, +1-206-392-0218; or Investors, Shannon Alberts of
Alaska Air Group, +1-206-392-5218

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