UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-8957

ALASKA AIR GROUP, INC.


Delaware						91-1292054
(State of Incorporation)						(I.R.S. Employer Identification No.)


19300 International Boulevard,			Seattle,			WA			98188

Telephone:

(206)

392-5040


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Ticker Symbol	Name of each exchange on which registered
Common stock, $0.01 par value	ALK	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange

Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer
(Do not check if a smaller reporting company)

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

The registrant has ~~125,232,721~~126,764,811 common shares, par value $0.01, outstanding at July 31, ~~2021.~~2022.

This document is also available on our website at http://investor.alaskaair.com.

ALASKA AIR GROUP, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, ~~2021~~2022

TABLE OF CONTENTS

As used in this Form 10-Q, the terms “Air Group,” the “Company,” “our,” “we” and "us" refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon” and together as our “airlines.”

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of 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. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations.

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. For a discussion of our risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, ~~2020.~~2021. Please consider our forward-looking statements in light of those risks as you read this report.

PART I


ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,025	$	1,370	Cash and cash equivalents	$	778	$	470
Marketable securities	Marketable securities	2,926		1,976		Marketable securities	2,647		2,646
Total cash and marketable securities	Total cash and marketable securities	3,951		3,346		Total cash and marketable securities	3,425		3,116
Receivables - net	Receivables - net	567		480		Receivables - net	401		546
Inventories and supplies - net	Inventories and supplies - net	52		57		Inventories and supplies - net	93		62
Prepaid expenses, assets held-for-sale, and other current assets		201		123
Prepaid expenses and other current assets						Prepaid expenses and other current assets	313		196
Total Current Assets	Total Current Assets	4,771		4,006		Total Current Assets	4,232		3,920

Property and Equipment	Property and Equipment					Property and Equipment
Aircraft and other flight equipment	Aircraft and other flight equipment	7,996		7,761		Aircraft and other flight equipment	8,569		8,127
Other property and equipment	Other property and equipment	1,433		1,398		Other property and equipment	1,532		1,489
Deposits for future flight equipment	Deposits for future flight equipment	402		583		Deposits for future flight equipment	292		384
		9,831		9,742			10,393		10,000
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	3,703		3,531		Less accumulated depreciation and amortization	3,922		3,862
Total Property and Equipment - Net	Total Property and Equipment - Net	6,128		6,211		Total Property and Equipment - Net	6,471		6,138

Other Assets						Other Assets
Operating lease assets	Operating lease assets	1,375		1,400		Operating lease assets	1,669		1,453
Goodwill		1,943		1,943
Intangible assets - net		103		107
Goodwill and intangible assets						Goodwill and intangible assets	2,041		2,044
Other noncurrent assets	Other noncurrent assets	336		379		Other noncurrent assets	387		396
Other Assets		3,757		3,829
Total Other Assets						Total Other Assets	4,097		3,893

Total Assets	Total Assets	$	14,656	$	14,046	Total Assets	$	14,800	$	13,951

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions, except share amounts)	(in millions, except share amounts)	June 30, 2021		December 31, 2020		(in millions, except share amounts)	June 30, 2022		December 31, 2021
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	159	$	108	Accounts payable	$	286	$	200
Accrued wages, vacation and payroll taxes	Accrued wages, vacation and payroll taxes	439		527		Accrued wages, vacation and payroll taxes	416		457
Air traffic liability	Air traffic liability	1,533		1,073		Air traffic liability	1,778		1,163

Other accrued liabilities	Other accrued liabilities	661		424		Other accrued liabilities	794		625
Deferred revenue	Deferred revenue	922		733		Deferred revenue	1,012		912
Current portion of operating lease liabilities	Current portion of operating lease liabilities	263		290		Current portion of operating lease liabilities	274		268
Current portion of long-term debt	Current portion of long-term debt	869		1,138		Current portion of long-term debt	342		366
Total Current Liabilities	Total Current Liabilities	4,846		4,293		Total Current Liabilities	4,902		3,991

Long-Term Debt, Net of Current Portion	Long-Term Debt, Net of Current Portion	2,319		2,357		Long-Term Debt, Net of Current Portion	1,961		2,173

Noncurrent Liabilities	Noncurrent Liabilities					Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion	Long-term operating lease liabilities, net of current portion	1,222		1,268		Long-term operating lease liabilities, net of current portion	1,505		1,279
Deferred income taxes	Deferred income taxes	439		407		Deferred income taxes	552		578
Deferred revenue	Deferred revenue	1,424		1,544		Deferred revenue	1,429		1,446
Obligation for pension and postretirement medical benefits		660		665
Obligation for pension and post-retirement medical benefits						Obligation for pension and post-retirement medical benefits	299		305
Other liabilities	Other liabilities	422		524		Other liabilities	353		378
Total Noncurrent Liabilities						Total Noncurrent Liabilities	4,138		3,986
		4,167		4,408
Commitments and Contingencies		0		0
Commitments and Contingencies (Note 7)						Commitments and Contingencies (Note 7)	0		0

Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, NaN issued or outstanding		0		0
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2021 - 134,579,403 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 125,229,459 shares; 2020 - 124,217,590 shares		1		1
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding						Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding	—		—
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 136,109,649 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,759,705 shares; 2021 - 125,905,864 shares						Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 136,109,649 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,759,705 shares; 2021 - 125,905,864 shares	1		1
Capital in excess of par value	Capital in excess of par value	454		391		Capital in excess of par value	542		494
Treasury stock (common), at cost: 2021 - 9,349,944 shares; 2020 - 9,349,944 shares		(674)		(674)
Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares						Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares	(674)		(674)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(487)		(494)		Accumulated other comprehensive loss	(308)		(262)
Retained earnings	Retained earnings	4,030		3,764		Retained earnings	4,238		4,242
		3,324		2,988			3,799		3,801
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	14,656	$	14,046	Total Liabilities and Shareholders' Equity	$	14,800	$	13,951

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share amounts)	(in millions, except per share amounts)	2021		2020		2021		2020		(in millions, except per share amounts)	2022		2021		2022		2021
Operating Revenues	Operating Revenues									Operating Revenues
Passenger revenue	Passenger revenue	$	1,352	$	309	$	2,011	$	1,790	Passenger revenue	$	2,418	$	1,352	$	3,929	$	2,011
Mileage Plan other revenue	Mileage Plan other revenue	118		73		212		182		Mileage Plan other revenue	175		118		287		212
Cargo and other	Cargo and other	57		39		101		85		Cargo and other	65		57		123		101
Total Operating Revenues	Total Operating Revenues	1,527		421		2,324		2,057		Total Operating Revenues	2,658		1,527		4,339		2,324
Operating Expenses	Operating Expenses									Operating Expenses
Wages and benefits	Wages and benefits	510		472		1,003		1,084		Wages and benefits	639		510		1,245		1,003
Variable incentive pay	Variable incentive pay	34		16		67		23		Variable incentive pay	56		34		92		67
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(503)		(362)		(914)		(362)		Payroll Support Program grant wage offset	—		(503)		—		(914)
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	274		59		477		443		Aircraft fuel, including hedging gains and losses	776		274		1,123		477
Aircraft maintenance	Aircraft maintenance	102		45		183		160		Aircraft maintenance	104		102		239		183
Aircraft rent	Aircraft rent	62		74		124		155		Aircraft rent	73		62		146		124
Landing fees and other rentals	Landing fees and other rentals	144		83		273		214		Landing fees and other rentals	136		144		274		273
Contracted services	Contracted services	54		30		105		102		Contracted services	82		54		160		105
Selling expenses	Selling expenses	41		4		74		59		Selling expenses	78		41		136		74
Depreciation and amortization	Depreciation and amortization	98		107		195		215		Depreciation and amortization	104		98		206		195
Food and beverage service	Food and beverage service	35		7		58		56		Food and beverage service	50		35		91		58
Third-party regional carrier expense	Third-party regional carrier expense	37		26		67		63		Third-party regional carrier expense	50		37		92		67
Other	Other	117		78		222		221		Other	177		117		329		222
Special items - impairment charges and other		(4)		69		14		229
Special items - fleet transition and related charges										Special items - fleet transition and related charges	146		(4)		221		14
Special items - restructuring charges	Special items - restructuring charges	(23)		0		(12)		0		Special items - restructuring charges	—		(23)		—		(12)
Special items - merger-related costs		0		1		0		4

Total Operating Expenses	Total Operating Expenses	978		709		1,936		2,666		Total Operating Expenses	2,471		978		4,354		1,936
Operating Income (Loss)	Operating Income (Loss)	549		(288)		388		(609)		Operating Income (Loss)	187		549		(15)		388
Nonoperating Income (Expense)

Non-operating Income (Expense)										Non-operating Income (Expense)
Interest income	Interest income	6		7		13		16		Interest income	11		6		18		13
Interest expense	Interest expense	(39)		(17)		(71)		(30)		Interest expense	(26)		(39)		(53)		(71)
Interest capitalized	Interest capitalized	3		1		6		4		Interest capitalized	3		3		5		6
Other - net	Other - net	9		6		19		11		Other - net	10		9		24		19
Total Nonoperating Income (Expense)		(21)		(3)		(33)		1
Total Non-operating Income (Expense)										Total Non-operating Income (Expense)	(2)		(21)		(6)		(33)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	528		(291)		355		(608)		Income (Loss) Before Income Tax	185		528		(21)		355
Income tax expense (benefit)	Income tax expense (benefit)	131		(77)		89		(162)		Income tax expense (benefit)	46		131		(17)		89
Net Income (Loss)	Net Income (Loss)	$	397	$	(214)	$	266	$	(446)	Net Income (Loss)	$	139	397		$	(4)	$	266

Basic Income (Loss) Per Share:		$	3.18	$	(1.74)	$	2.13	$	(3.62)
Diluted Income (Loss) Per Share:		$	3.13	$	(1.74)	$	2.10	$	(3.62)
Basic Earnings (Loss) Per Share:										Basic Earnings (Loss) Per Share:	$	1.10	$	3.18	$	(0.03)	$	2.13
Diluted Earnings (Loss) Per Share:										Diluted Earnings (Loss) Per Share:	$	1.09	$	3.13	$	(0.03)	$	2.10
Shares used for computation:	Shares used for computation:									Shares used for computation:
Basic	Basic	124.977		123.296		124.640		123.058		Basic	126.543		124.977		126.265		124.640
Diluted	Diluted	126.825		123.296		126.388		123.058		Diluted	127.795		126.825		126.265		126.388

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 2021 2020
Net Income (Loss) $ 397 $ (214) $ 266 $ (446)
Other Comprehensive Income (Loss):
Related to marketable securities:
Unrealized holding gain (loss) arising during the period 0 31 (11) 30
Reclassification of gain into Other - net nonoperating income (2) (6) (6) (9)
Income tax effect 1 (6) 4 (5)
Total (1) 19 (13) 16
Related to employee benefit plans:
Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income 9 8 17 15
Income tax effect (2) (2) (4) (4)
Total 7 6 13 11
Related to interest rate derivative instruments:
Unrealized holding gain (loss) arising during the period 1 (2) 9 (27)
Reclassification of loss into Aircraft rent 0 0 0 1
Income tax effect 0 1 (2) 6
Total 1 (1) 7 (20)
Other Comprehensive Income 7 24 7 7
Comprehensive Income (Loss) $ 404 $ (190) $ 273 $ (439)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Net Income (Loss)	$	139	$	397	$	(4)	$	266
Other comprehensive income (loss), net of tax
Marketable securities	(20)		(1)		(60)		(13)
Employee benefit plans	—		7		1		13
Interest rate derivative instruments	4		1		13		7
Total other comprehensive income (loss), net of tax	$	(16)	$	7	$	(46)	$	7

Total comprehensive income (loss), net	$	123	$	404	$	(50)	$	273

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)

(in millions) Common Stock Outstanding Common Stock Capital in Excess of Par Value Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Balances at December 31, 2020 124.217 $ 1 $ 391 $ (674) $ (494) $ 3,764 $ 2,988
Net loss — — — — — (131) (131)
Other comprehensive income — — — — 0 — 0
Stock-based compensation — — 12 — — — 12
CARES Act warrant issuance — — 8 — — — 8
Stock issued under stock plans 0.225 — (2) — — — (2)
Balances at March 31, 2021 124.442 $ 1 $ 409 $ (674) $ (494) $ 3,633 $ 2,875
Net income — — — — — 397 397
Other comprehensive income — — — — 7 — 7
Stock-based compensation 0.009 — 13 — — — 13
CARES Act warrant issuance — — 8 — — — 8
Stock issued for employee stock purchase plan 0.716 — 23 — — — 23
Stock issued under stock plans 0.062 — 1 — — — 1
Balances at June 30, 2021 125.229 1 454 (674) (487) 4,030 3,324


(in millions)	Common Stock Outstanding	Common Stock		Capital in Excess of Par Value		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balances at December 31, 2021	125.906	$	1	$	494	$	(674)	$	(262)	$	4,242	$	3,801
Net income (loss)	—	—		—		—		—		(143)		(143)
Other comprehensive income (loss)	—	—		—		—		(30)		—		(30)

Stock-based compensation	—	—		13		—		—		—		13



Stock issued under stock plans	0.182	—		(4)		—		—		—		(4)
Balances at March 31, 2022	126.088	$	1	$	503	$	(674)	$	(292)	$	4,099	$	3,637
Net income (loss)	—	—		—		—		—		139		139
Other comprehensive income (loss)	—	—		—		—		(16)		—		(16)

Stock-based compensation	0.017	—		9		—		—		—		9


Stock issued for employee stock purchase plan	0.643	—		30		—		—		—		30
Stock issued under stock plans	0.012	—		—		—		—		—		—
Balances at June 30, 2022	126.760	$	1	$	542	$	(674)	$	(308)	$	4,238	$	3,799

(in millions) Common Stock Outstanding Common Stock Capital in Excess of Par Value Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Balances at December 31, 2019 123.000 $ 1 $ 305 $ (643) $ (465) $ 5,133 $ 4,331
Net loss — — — — — (232) (232)
Other comprehensive loss — — — — (17) — (17)
Common stock repurchase (0.538) — — (31) — — (31)
Stock-based compensation — — 9 — — — 9
Cash dividend declared
($0.375 per share) — — — — (45) (45)
Stock issued under stock plans 0.123 — — — — — 0
Balance at March 31, 2020 122.585 $ 1 $ 314 $ (674) $ (482) $ 4,856 $ 4,015
Net loss — — — — — (214) (214)
Other comprehensive income — — — — 24 — 24
Stock-based compensation — — 2 — — — 2
CARES Act warrant issuance — — 7 — — — 7
Stock issued for employee stock purchase plan 1.000 — 27 — — — 27
Stock issued under stock plans 0.054 — 0 — — — 0
Balances at June 30, 2020 123.639 $ 1 $ 350 $ (674) $ (458) $ 4,642 $ 3,861


(in millions)	Common Stock Outstanding	Common Stock		Capital in Excess of Par Value		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balances at December 31, 2020	124.217	$	1	$	391	$	(674)	$	(494)	$	3,764	$	2,988

Net income (loss)	—	—		—		—		—		(131)		(131)
Other comprehensive income (loss)	—	—		—		—		—		—		—

Stock-based compensation	—	—		12		—		—		—		12
CARES Act warrant issuance	—	—		8		—		—		—		8


Stock issued under stock plans	0.225	—		(2)		—		—		—		(2)
Balance at March 31, 2021	124.442	$	1	$	409	$	(674)	$	(494)	$	3,633	$	2,875
Net income (loss)	—	—		—		—		—		397		397
Other comprehensive income (loss)	—	—		—		—		7		—		7

Stock-based compensation	0.009	—		13		—		—		—		13
CARES Act warrant issuance	—	—		8		—		—		—		8

Stock issued for employee stock purchase plan	0.716	—		23		—		—		—		23
Stock issued under stock plans	0.062	—		1		—		—		—		1
Balances at June 30, 2021	125.229	$	1	$	454	$	(674)	$	(487)	$	4,030	$	3,324

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Six Months Ended June 30,					Six Months Ended June 30,
(in millions)	(in millions)	2021		2020		(in millions)		2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net Income (Loss)	Net Income (Loss)	$	266	$	(446)	Net Income (Loss)		$	(4)	$	266
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net gain (loss) to net cash provided by operating activities:						Adjustments to reconcile net gain (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	195		215		Depreciation and amortization		206		195
Stock-based compensation and other	Stock-based compensation and other	24		7		Stock-based compensation and other		20		24
Special items - impairment charges and other		14		229
Special items - fleet transition and related charges						Special items - fleet transition and related charges		221		14
Special items - restructuring charges	Special items - restructuring charges	(12)		0		Special items - restructuring charges		—		(12)
Changes in certain assets and liabilities:	Changes in certain assets and liabilities:					Changes in certain assets and liabilities:
Changes in deferred tax provision	Changes in deferred tax provision	33		(98)		Changes in deferred tax provision		(14)		33
Increase in accounts receivable						Increase in accounts receivable		(115)		(86)
Increase in air traffic liability	Increase in air traffic liability	460		231		Increase in air traffic liability		615		460
Increase in deferred revenue	Increase in deferred revenue	69		84		Increase in deferred revenue		83		69

Federal income tax refund						Federal income tax refund		260		—
Other - net	Other - net	(42)		99		Other - net		(37)		44
Net cash provided by operating activities	Net cash provided by operating activities	1,007		321		Net cash provided by operating activities		1,235		1,007
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Property and equipment additions:	Property and equipment additions:					Property and equipment additions:
Aircraft and aircraft purchase deposits	Aircraft and aircraft purchase deposits	(30)		(58)		Aircraft and aircraft purchase deposits		(509)		(30)
Other flight equipment	Other flight equipment	(38)		(43)		Other flight equipment		(69)		(38)
Other property and equipment	Other property and equipment	(34)		(67)		Other property and equipment		(54)		(34)
Total property and equipment additions, including capitalized interest	Total property and equipment additions, including capitalized interest	(102)		(168)		Total property and equipment additions, including capitalized interest		(632)		(102)
Purchases of marketable securities	Purchases of marketable securities	(2,524)		(1,004)		Purchases of marketable securities		(1,410)		(2,524)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	1,561		1,038		Sales and maturities of marketable securities		1,323		1,561
Other investing activities	Other investing activities	(5)		10		Other investing activities		(2)		(5)
Net cash used in investing activities	Net cash used in investing activities	(1,070)		(124)		Net cash used in investing activities		(721)		(1,070)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of debt	Proceeds from issuance of debt	363		1,265		Proceeds from issuance of debt		—		363
Common stock repurchases		0		(31)
Dividends paid		0		(45)

Long-term debt payments	Long-term debt payments	(681)		(125)		Long-term debt payments		(239)		(681)
Other financing activities	Other financing activities	37		27		Other financing activities		33		37
Net cash provided by (used in) financing activities		(281)		1,091
Net cash used in financing activities						Net cash used in financing activities		(206)		(281)
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	(344)		1,288		Net increase (decrease) in cash, cash equivalents, and restricted cash		308		(344)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	1,386		232		Cash, cash equivalents, and restricted cash at beginning of period		494		1,386
Cash, cash equivalents, and restricted cash at end of the period	Cash, cash equivalents, and restricted cash at end of the period	$	1,042	$	1,520	Cash, cash equivalents, and restricted cash at end of the period		$	802	$	1,042

Cash paid during the period for:
Interest (net of amount capitalized)		$	61	$	25
Income taxes		0		0

Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents		$	1,025	$	1,509
Restricted cash included in Prepaid expenses, assets held-for-sale, and other current assets		17		11
Total cash, cash equivalents, and restricted cash at end of the period		$	1,042	$	1,520


	Six Months Ended June 30,
(in millions)		2022		2021

Cash paid during the period for:
Interest (net of amount capitalized)		$	35	$	61
Income taxes		—		—

Non-cash transactions:
Right-of-use assets acquired through operating leases		378		77

Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents		778		1,025
Restricted cash included in Prepaid expenses and other current assets		24		17
Total cash, cash equivalents, and restricted cash at end of the period		$	802	$	1,042

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

The condensed consolidated financial statements include the accounts of Air Group, or the Company, and its primary subsidiaries, Alaska and Horizon. The condensed consolidated financial statements also include McGee Air Services (McGee), a ground services subsidiary of Alaska. The Company conducts substantially all of its operations through these subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. It should be read in conjunction with the consolidated financial statements and accompanying notes in the Form 10-K for the year ended December 31, ~~2020.~~2021. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of June 30, ~~2021~~2022 and the results of operations for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. Such adjustments were of a normal recurring nature.

In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses, including impairment charges. Due to the impacts of the coronavirus (COVID-19) pandemic on the Company's business, these estimates and assumptions require more judgment than they would otherwise given the uncertainty of the future demand for air travel, among other considerations. Further, due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment, and other factors, operating results for the three and six months ended June 30, ~~2021~~2022 are not necessarily indicative of operating results for the entire year.

NOTE 2. ~~COVID-19 PANDEMIC~~FLEET TRANSITION

In the first quarter of 2022, the Company announced plans to accelerate the transition of mainline operations to an all-Boeing 737 fleet. It also announced new plans to transition its regional operations to an all-Embraer fleet, retiring the Q400 fleet. Under these plans, Alaska will accelerate the retirement of its Airbus A320 aircraft, with all expected to exit the fleet by early 2023. Alaska also operates A321neo aircraft, and is evaluating options to remove them from its fleet by the end of 2023, subject to agreement with counterparties. The Company operated 29 A320 and ten A321neo aircraft as of June 30, 2022. Horizon plans to retire its Q400 fleet, which includes 25 owned and seven leased aircraft in operation at June 30, 2022, in early 2023.

Valuation of long-lived assets

The ~~public health and economic crisis resulting from~~Company reviews its long-lived assets for impairment whenever events or changes indicate that the ~~outbreak~~total carrying amount of ~~COVID-19 in~~an asset or asset group may not be recoverable. During the first quarter of ~~2020 continues~~2022, the Company recorded an impairment charge of $70 million related to ~~have a significant impact~~the Q400 fleet, reflecting the amount by which carrying value exceeded fair value of the owned Q400 aircraft as of March 31, 2022. This amount was recorded within the "Special items - fleet transition and related charges" line in the consolidated statement of operations. Refer to Note 2 to our consolidated financial statements in our Quarterly Report on ~~the Company. Although the relaxation of restrictions by state and local governments and the rollout of vaccination programs have allowed~~Form 10-Q for the ~~return of demand, passenger enplanements remain below pre-pandemic levels. As a result, the Company continues to fly less capacity than it had pre-pandemic.~~three months ended March 31, 2022 for additional details.

~~Beginning in 2020,~~In the second quarter, the Company ~~implemented various cost-saving initiatives, including permanently parking~~adjusted useful lives and depreciation schedules for Airbus and Q400 capitalized leasehold improvements, spare engines, inventory, and other fixed assets, as well as the amortization schedules for the right of use assets and aircraft ~~restructuring~~rent expenses. These accelerated schedules are based on the ~~workforce through early-out~~dates the aircraft are expected to be removed from operating service and ~~incentive leave programs,~~were effective beginning this quarter. Incremental costs associated with the accelerated schedules are recognized within the "Special items - fleet transition and ~~obtaining funding available under programs offered by~~related charges" line item.

The Company has estimated future lease return costs for the ~~U.S. Department~~leased Airbus aircraft. Costs of returning leased aircraft begin accruing when the costs are probable and reasonably estimable, and are recognized over the remaining operating life of the ~~Treasury (the Treasury). As demand has improved~~aircraft. These estimates are based on the time remaining on the lease, planned aircraft usage, and lease terms. These estimates may change as actual amounts due to any lessor upon return may not be known with certainty until lease termination. In the ~~business has grown back towards pre-pandemic flying levels, these programs have been adjusted to meet~~second quarter, all lease return costs were recorded within the ~~needs~~"Special items - fleet transition and related charges" line in the consolidated statement of ~~the airline. The impacts~~operations.

A summary of ~~these programs~~special charges for fleet transition activities is included below for the three and six months ended June 30, ~~2021 are described below.~~

~~Lease Return Costs~~

2022. The Company removed 40 leased Aircraft from operating service in 2020, and recorded an estimate of the expected future lease return costs for the aircraft. Lease return costs include the write off of associated maintenance deposits, as the Company no longer expects to perform maintenance events covered by those deposits. The total net charge recorded in 2020 for aircraft that were parked amounted to $209 million. In the first quarter of 2021, the Company recorded an additional $18 million in incremental costs associated with leased aircraft that have been retired and removed from the operating fleet but not yet returned to the lessor, which was classified as Special items - impairment charges ~~and~~are one-time in nature, while the other ~~on the condensed consolidated statements of operations. In the second quarter, expected costs~~special charges continue to ~~return leased aircraft was reduced by $4 million. The lease return cost estimates are based on the Company's best estimate of costs to return aircraft as of the date of this filing.~~

In the second quarter of 2021, the Company initiated a plan to reactivate up to twelve previously parked Airbus aircraft to support the Company's plans for restoring capacity to 100% of pre-pandemic levels by no later than summer 2022. These reactivations create flexibility as management seeks to return capacity, mitigating against both staffing and supply chain risks that could constrain Alaska or Horizon's available capacity. Management's plans to return to 100% of pre-pandemic levels by no later than summer 2022 arebe recorded consistent with ~~previous plans, but some recovery has been accelerated into~~ the second half of 2021 in response to the strong demand recovery that took place in the second quarter.The first of these reactivated aircraft are expected to reenter revenue service beginning in the third quarter of 2021, with all reactivated by the second quarter of 2022. The Company currently anticipates these aircraft will be removed from operating service beginning in late 2022 through the end

of 2023. At this time, the Company does not anticipate material changes to estimated lease return costs previously recorded, as leases for aircraft returning to service generally expire within a near term window.

~~Workforce restructuring~~

The Company continues to expect that demand will be below pre-pandemic levels through the end of 2021, but management will continue rebuilding capacity to 2019 levels. The Company reduced its workforce in 2020 to better align with the expected size of the business. To mitigate the need for involuntary furloughs, various early-out and voluntary leave programs were made available to all frontline work groups, in addition to incentive leave programs made available to Alaska pilots and mechanics. Through these programs, over 600 employees took permanent early-outs and over 3,300 employees took voluntary or incentive leaves. As of June 30, 2021, approximately 1,800 employees remain on a voluntary leave program. The Company expects all employees on leave to return to work by October 2021.

In 2020, as a result of these programs, the Company recorded $220 million in wage expense for those pilots and mechanics on incentive leaves, ongoing medical benefit coverage and lump-sum termination payments. In the first quarter of 2021, the Company refined capacity expectations and training schedules, and delayed certain recalls to a future period beyond what was anticipated in the accrual at December 31, 2020, resulting in additional expense of $11 million. In the second quarter, demand improved at an accelerated pace, and the Company issued recall notices to all pilots on incentive leave for return-to-work by October 2021. As a result, $23 million of incentive leave accrual was reversed and recognized as a benefit within Special items - restructuring charges in the condensed consolidated statements of operations during the three months ended June 30, 2021. In total, the Company has recorded a net benefit from these adjustments of $12 million during the six months ended June 30, 2021.

~~The table below presents a roll forward of the outstanding voluntary leave liability (in millions):~~


	Six Months Ended June 30, 2021
~~Total voluntary leave liability balance at January 1~~	$	~~127~~
~~Cash payments~~	~~(79)~~
~~Charges and adjustments~~	~~(12)~~
~~Total voluntary leave liability balance at June 30~~	$	36

The outstanding accrual is based on the Company's best estimate of capacity expectations and training schedules for 2021, as of the date of this filing. The Company will make the majority of the remaining cash payments associated with this liability in 2021. The balance is reflected in accrued wages, benefits and payroll taxes on the condensed consolidated balance sheet.

~~CARES Act Funding~~

During the first quarter of 2021, Alaska, Horizon, and McGee finalized agreements with the Treasury through an extension of the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act, made available under the Consolidated Appropriations Act, 2021 (PSP 2). Under PSP 2 and the supporting agreements, Alaska and Horizon received total funds of approximately $539 million in the first quarter of 2021. In April 2021, Alaska and Horizon received an additional $80 million in funds made available under PSP 2.

Also in April 2021, Alaska, Horizon and McGee finalized additional agreements with the Treasury under a third round of the PSP, made available under the American Rescue Plan Act of 2021 (PSP 3). Under PSP 3 and the supporting agreements, Alaska, Horizon, and McGee received total funds of $585 million in the second quarter of 2021.

Of the amounts received during the six months ended June 30, 2021, $311 million represented unsecured debt and was recorded at par, and $16 million represented warrants recorded at fair value using the Black-Scholes model. Both were recorded on the condensed consolidated balance sheet. The remaining $892 million was recorded as grant proceeds. These amounts are inclusive of additional funding of $8 million made available to McGee under the first installment of the PSP program (PSP 1). The grant is recorded as an offset to wages, salaries and benefits as eligible expenses are incurred. During the six months ended June 30, 2021, the Company recognized $914 million of the PSP grant proceeds as a wage offset. Included within this $914 million is approximately $21 million for employee retention credits as provided for in the CARES Act. The Company does not expect to record any additional wage offset in 2021.

~~Total funds contracted from~~schedules described above. The majority of remaining special charges associated with the ~~Treasury under~~fleet transition will be recorded in 2022, with additional amounts to be recorded in 2023. The Company will continue to evaluate the ~~three Payroll Support Programs are allocated~~need for further impairment or adjustments for owned and leased long-lived assets as ~~follows (in millions):~~
Grants Loans Warrants Total Proceeds
PSP 1 $ 757 $ 293 $ 9 $ 1,059
PSP 2 457 160 9 626
PSP 3 431 147 7 585
Total $ 1,645 $ 600 $ 25 $ 2,270
fleet decisions evolve.

Funds are exclusively used for payment of employee salaries, wages and benefits. Upon receipt of the funds issued under PSP 3, certain conditions and restrictions were extended. These conditions include, but are not limited to, refraining from conducting involuntary furloughs or reducing employee pay rates through September 30, 2021 and placing limits on executive compensation and severance through April 1, 2023. Alaska Air Group also agreed to continue the suspension of dividends and share repurchases until September 30, 2022.


	Three Months Ended June 30, 2022						Six Months Ended June 30, 2022
(in millions)	Airbus		Q400		Total		Airbus		Q400		Total
Impairment of long-lived assets	$	—	$	—	$	—	$	—	$	70	$	70
Accelerated aircraft ownership expenses	40		3		43		40		3		43
Lease return costs and other expenses	103		—		103		108		—		108
Total special items - fleet transition and related charges	$	143	$	3	$	146	$	148	$	73	$	221

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents the primary source of the Company's revenue. Also included in Passenger revenue ~~are~~is passenger ancillary ~~revenues~~revenue such as bag fees, on-board food and beverage, ~~ticket change fees,~~ and certain revenue from the frequent flyer program. ~~In 2020, the Company eliminated ticket change fees indefinitely from its main cabin and first class fares.~~ Mileage Plan other revenue includes brand and marketing revenue from ~~our~~the co-branded credit card and other partners and certain interline frequent flyer revenue, net of commissions. Cargo and other revenue includes freight and mail revenue, and to a lesser extent, other ancillary revenue products such as lounge membership and certain commissions.

In the first quarter of 2022, the Company amended its Mileage Plan co-branded credit card agreement with Bank of America. The amendment extended the term of the agreement into 2030 and resulted in modifications to the separately identifiable performance obligations.

The Company disaggregates revenue by segment in Note 9. The level of detail within the Company’s condensed consolidated statements of operations, segment disclosures, and in this footnote depict the nature, amount, timing and uncertainty of revenue and how cash flows are affected by economic and other factors.

Passenger Ticket and Ancillary Services Revenue

Passenger revenue recognized in the condensed consolidated statements of operations (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Passenger ticket revenue, including ticket breakage and net of taxes and fees		$	1,114	$	222	$	1,639	$	1,435
Passenger ticket revenue, including ticket breakage, net of taxes and fees										Passenger ticket revenue, including ticket breakage, net of taxes and fees	$	2,052	$	1,114	$	3,284	$	1,639
Passenger ancillary revenue	Passenger ancillary revenue	84		31		134		147		Passenger ancillary revenue	119		84		210		134
Mileage Plan passenger revenue	Mileage Plan passenger revenue	154		56		238		208		Mileage Plan passenger revenue	247		154		435		238
Total Passenger revenue	Total Passenger revenue	$	1,352	$	309	$	2,011	$	1,790	Total Passenger revenue	$	2,418	$	1,352	$	3,929	$	2,011

Mileage ~~Plan™~~Plan Loyalty Program

Mileage ~~Plan™~~Plan revenue included in the condensed consolidated statements of operations (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Passenger revenue	Passenger revenue	$	154	$	56	$	238	$	208	Passenger revenue	$	247	$	154	$	435	$	238
Mileage Plan other revenue	Mileage Plan other revenue	118		73		212		182		Mileage Plan other revenue	175		118		287		212
Total Mileage Plan revenue	Total Mileage Plan revenue	$	272	$	129	$	450	$	390	Total Mileage Plan revenue	$	422	$	272	$	722	$	450

Cargo and Other

Cargo and other revenue included in the condensed consolidated statements of operations (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Cargo revenue	Cargo revenue	$	34	$	28	$	61	$	52	Cargo revenue	$	36	$	34	$	65	$	61
Other revenue	Other revenue	23		11		40		33		Other revenue	29		23		58		40
Total Cargo and other revenue	Total Cargo and other revenue	$	57	$	39	$	101	$	85	Total Cargo and other revenue	$	65	$	57	$	123	$	101

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $132 million and $36 million ~~and net refunds~~ from the prior year-end air traffic liability balance for the three months ended June 30, 2022 and 2021, and ~~2020,~~$522 million and $175 ~~million and $484~~ million for the six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

Given the increase in demand for air travel from the recovery from the COVID-19 pandemic, advance bookings and associated cash receipts have significantly increased in relation to prior year. The Company also experienced increased revenue recognition from credits redeemed for travel, for which the remaining balance is included in the air traffic liability balance, and total $387 million, net of breakage. In April 2021, the Company announced updated expiration terms for these credits, extending to December 31, 2021 for possible travel through November 30, 2022.

Mileage PlanTM assets and liabilities

The Company records a receivable for amounts due from the ~~bank~~affinity card partner and from other partners as mileage credits are sold until the payments are collected. The Company had ~~$61~~$76 million of such receivables as of June 30, ~~2021~~2022 and ~~$48~~$64 million as of December 31, ~~2020. As demand for air travel continues to increase unpredictably, the timing of recognition of mileage credits may differ from current assumptions.~~2021.

The table below presents a roll forward of the total frequent flyer liability (in millions):


		Six Months Ended June 30,						Six Months Ended June 30,
			2021		2020				2022		2021
Total Deferred Revenue balance at January 1			$	2,277	$	1,990
Total Deferred revenue balance at January 1							Total Deferred revenue balance at January 1		$	2,358	$	2,277
Travel miles and companion certificate redemption - Passenger revenue	Travel miles and companion certificate redemption - Passenger revenue		(238)		(208)		Travel miles and companion certificate redemption - Passenger revenue		(409)		(238)
Miles redeemed on partner airlines - Other revenue	Miles redeemed on partner airlines - Other revenue		(17)		(21)		Miles redeemed on partner airlines - Other revenue		(26)		(17)
Increase in liability for mileage credits issued	Increase in liability for mileage credits issued		324		313		Increase in liability for mileage credits issued		518		324
Total Deferred Revenue balance at June 30			$	2,346	$	2,074
Total Deferred revenue balance at June 30							Total Deferred revenue balance at June 30		$	2,441	$	2,346

NOTE 4. FAIR VALUE MEASUREMENTS

In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used. Level 1 refers to fair values based on quoted prices in active markets for identical assets or liabilities. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 refers to fair values estimated using significant unobservable inputs.

Fair Value of Financial Instruments on a Recurring Basis

As of June 30, ~~2021,~~2022, total cost basis for all marketable securities was ~~$2.9 billion. There were no significant differences between the cost basis and~~$2.7 billion, compared to a total fair value of $2.6 billion. The decline in value is primarily due to changes in interest rates. Management does not believe any ~~individual class~~unrealized losses are the result of ~~marketable securities.~~expected credit losses based on its evaluation of available information as of June 30, 2022.

Fair values of financial instruments on the condensed consolidated balance sheet (in millions):


		June 30, 2021						December 31, 2020							June 30, 2022						December 31, 2021
		Level 1		Level 2		Total		Level 1		Level 2		Total			Level 1		Level 2		Total		Level 1		Level 2		Total

Assets	Assets													Assets
Marketable securities	Marketable securities													Marketable securities
U.S. government and agency securities	U.S. government and agency securities	$	298	$	0	$	298	$	407	$	0	$	407	U.S. government and agency securities	$	522	$	—	$	522	$	331	$	—	$	331
Equity mutual funds	Equity mutual funds	5		0		5		7		0		7		Equity mutual funds	5		—		5		6		—		6
Foreign government bonds	Foreign government bonds	0		31		31		0		20		20		Foreign government bonds	—		28		28		—		38		38
Asset-backed securities	Asset-backed securities	0		330		330		0		224		224		Asset-backed securities	—		278		278		—		311		311
Mortgage-backed securities	Mortgage-backed securities	0		253		253		0		290		290		Mortgage-backed securities	—		218		218		—		232		232
Corporate notes and bonds	Corporate notes and bonds	0		1,943		1,943		0		978		978		Corporate notes and bonds	—		1,549		1,549		—		1,663		1,663
Municipal securities	Municipal securities	0		66		66		0		50		50		Municipal securities	—		47		47		—		65		65
Total Marketable securities	Total Marketable securities	303		2,623		2,926		414		1,562		1,976		Total Marketable securities	527		2,120		2,647		337		2,309		2,646
Derivative instruments	Derivative instruments													Derivative instruments
Fuel hedge - call options	Fuel hedge - call options	0		92		92		0		15		15		Fuel hedge - call options	—		175		175		—		81		81

Interest rate swap agreements														Interest rate swap agreements	—		9		9		—		—		—
Total Assets	Total Assets	$	303	$	2,715	$	3,018	$	414	$	1,577	$	1,991	Total Assets	$	527	$	2,304	$	2,831	$	337	$	2,390	$	2,727

Liabilities	Liabilities													Liabilities
Derivative instruments	Derivative instruments													Derivative instruments

Interest rate swap agreements	Interest rate swap agreements	0		(16)		(16)		0		(25)		(25)		Interest rate swap agreements	—		—		—		—		(9)		(9)
Total Liabilities	Total Liabilities	$	0	$	(16)	$	(16)	$	0	$	(25)	$	(25)	Total Liabilities	$	—	$	—	$	—	$	—	$	(9)	$	(9)

The Company uses both the market and income approach to determine the fair value of marketable securities. U.S. government securities and equity mutual funds are Level 1 as the fair value is based on quoted prices in active markets. Foreign government bonds, asset-backed securities, mortgage-backed securities, corporate notes and bonds, and municipal securities are Level 2 as the fair value is based on standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.

The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in active markets or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts are determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR-based interest forward rates at period end multiplied by the total notional value.

Activity and Maturities for Marketable Securities

Unrealized losses from marketable securities are primarily attributable to changes in interest rates. Management does not believe any unrealized losses are the result of expected credit losses based on its evaluation of available information as of June 30, 2021.

Maturities for marketable securities (in millions):


June 30, 2021		Cost Basis		Fair Value
June 30, 2022						June 30, 2022	Cost Basis		Fair Value
Due in one year or less	Due in one year or less	$	1,538	$	1,539	Due in one year or less	$	803	$	799
Due after one year through five years	Due after one year through five years	1,280		1,294		Due after one year through five years	1,895		1,818
Due after five years through 10 years		88		88
Due after five years						Due after five years	27		24

Total	Total	$	2,906	$	2,921	Total	$	2,725	$	2,641

As of June 30, 2022, $6 million of total marketable securities do not have a maturity date and are therefore excluded from the total fair value of maturities for marketable securities above.

Fair Value of Other Financial Instruments

The Company uses the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.

Cash, Cash Equivalents, and Restricted Cash: Cash equivalents consist of highly liquid investments with original maturities of three months or less, such as money market funds, commercial paper and certificates of deposit. They are carried at cost, which approximates fair value.

The Company's restricted cash balances are primarily used to guarantee various letters of credit, self-insurance programs or other contractual rights. Restricted cash consists of highly liquid securities with original maturities of three months or less. They are carried at cost, which approximates fair value.

Debt: To estimate the fair value of all fixed-rate debt as of June 30, ~~2021,~~2022, the Company uses the income approach by discounting cash flows or estimation using quoted market prices, utilizing borrowing rates for comparable debt over the remaining life of the outstanding debt. The estimated fair value of the fixed-rate Enhanced Equipment Trust Certificate (EETC) debt is Level 2, as it is estimated using observable inputs, while the estimated fair value of ~~$780~~$721 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as it is not actively traded and is valued using discounted cash flows which is an unobservable input.

Fixed-rate debt on the condensed consolidated balance sheet and the estimated fair value of long-term fixed-rate debt is as follows (in millions):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021

Total fixed-rate debt	Total fixed-rate debt	$	1,896	$	1,662	Total fixed-rate debt	$	1,731	$	1,821

Estimated fair value	Estimated fair value	$	2,019	$	1,778	Estimated fair value	$	1,711	$	1,919

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. ~~No material impairments were~~Refer to Note 2 for discussion regarding impairment charges recorded during the ~~three and~~ six months ended June 30, ~~2021.~~2022.

NOTE 5. LONG-TERM DEBT

Long-term debt obligations on the condensed consolidated balance sheet (in millions):


		June 30, 2021			December 31, 2020				June 30, 2022			December 31, 2021
Fixed-rate notes payable due through 2029	Fixed-rate notes payable due through 2029	$	180		$	198		Fixed-rate notes payable due through 2029	$	129		$	163
Fixed-rate PSP notes payable due through 2031	Fixed-rate PSP notes payable due through 2031	600			290			Fixed-rate PSP notes payable due through 2031	600			600
Fixed-rate EETC payable due through 2025 & 2027	Fixed-rate EETC payable due through 2025 & 2027	1,116			1,174			Fixed-rate EETC payable due through 2025 & 2027	1,002			1,058
Variable-rate notes payable due through 2029	Variable-rate notes payable due through 2029	1,315			1,866			Variable-rate notes payable due through 2029	589			738
Less debt issuance costs and unamortized debt discount		(23)			(33)
Less debt issuance costs								Less debt issuance costs	(17)			(20)
Total debt	Total debt	3,188			3,495			Total debt	2,303			2,539
Less current portion	Less current portion	869			1,138			Less current portion	342			366
Long-term debt, less current portion	Long-term debt, less current portion	$	2,319		$	2,357		Long-term debt, less current portion	$	1,961		$	2,173

Weighted-average fixed-interest rate	Weighted-average fixed-interest rate	3.7		%	4.3		%	Weighted-average fixed-interest rate	3.6		%	3.7		%
Weighted-average variable-interest rate	Weighted-average variable-interest rate	1.6		%	1.9		%	Weighted-average variable-interest rate	2.8		%	1.3		%

Approximately ~~$562~~$372 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at June 30, ~~2021,~~2022, resulting in an effective weighted-average interest rate for the full debt portfolio of ~~3.1%~~3.4%.

During the six months ended June 30, 2021, the Company issued $363 million of debt, comprised of $311 million of unsecured loans from the PSP and $54 million in proceeds from issuance of debt. Debt proceeds were offset by $681 million in debt

~~payments. Included within total~~During the six months ended June 30, 2022, the Company made scheduled debt payments ~~is the full repayment~~ of ~~the $135~~$222 million ~~loan from the U.S. Treasury made available under the CARES Act~~ and ~~the $363~~prepayments of $17 million ~~outstanding balance on two credit facilities.~~

~~The $600 million PSP notes are unsecured senior term~~for loans with a 10-year term, bearing an interest rate of 1% in years 1 through 5, and an interest rate equal to the Secured Overnight Financing Rate (SOFR) plus 2% in years 6 through 10. The PSP notes are prepayable at par without penalty.

~~CARES Act~~

~~In 2020, the Company finalized an agreement with the Treasury to obtain up to $1.9 billion via a secured term loan facility. Obligations under the loan agreement were secured by assets~~ related to ~~and revenues generated by, Alaska's Mileage Plan~~TM frequent flyer program, as well as by 30 aircraft and 15 spare engines. In 2020, the Company drew $135 million under the agreement, which was used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the loan agreement and the applicable provisions of the CARES Act. The full balance was repaid in the second quarter of 2021. In accordance with the related agreement, the facility terminated at the time of payment.Q400 aircraft.

Debt Maturity

At June 30, ~~2021~~2022, long-term debt principal payments for the next five years and thereafter are as follows (in millions):


		Total			Total
Remainder of 2021		$	227
2022		796
Remainder of 2022				Remainder of 2022	$	146
2023	2023	334		2023	329
2024	2024	240		2024	235
2025	2025	261		2025	256
2026				2026	176
Thereafter	Thereafter	1,353		Thereafter	1,178
Total	Total	$	3,211	Total	$	2,320

Bank Lines of Credit

~~The Company~~Alaska has 3 credit facilities ~~with availability~~ totaling $486 million as of June 30, ~~2021, resulting from the second quarter 2021 repayment of $363 million.~~2022. One of the credit facilities for $150 million expires in March ~~2022~~2025 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. ~~The~~A second credit facility for $250 million expires in June 2024 and is secured by aircraft. ~~These two~~Both facilities have variable interest rates based on LIBOR plus a specified margin. A third credit facility for $86 million expires in June ~~2022~~2023 and is secured by aircraft.

~~The Company~~Alaska has secured letters of credit against the third facility, but has no plans to borrow using either of the other two facilities. All credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. ~~The Company~~Alaska was in compliance with this covenant at June 30, ~~2021.~~2022.

NOTE 6. EMPLOYEE BENEFIT PLANS

Net periodic benefit costs for qualified defined-benefit plans include the following (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Service cost	Service cost	$	13	$	13	$	26	$	26	Service cost	$	11	$	13	$	22	$	26
Pension expense included in Wages and benefits	Pension expense included in Wages and benefits	13		13		26		26		Pension expense included in Wages and benefits	11		13		22		26

Interest cost	Interest cost	14		19		28		38		Interest cost	16		14		32		28
Expected return on assets	Expected return on assets	(30)		(27)		(61)		(55)		Expected return on assets	(32)		(30)		(64)		(61)

Recognized actuarial loss	Recognized actuarial loss	9		8		18		17		Recognized actuarial loss	2		9		4		18
Pension expense included in Nonoperating Income (Expense)	Pension expense included in Nonoperating Income (Expense)	$	(7)	$	0	$	(15)	$	0	Pension expense included in Nonoperating Income (Expense)	$	(14)	$	(7)	$	(28)	$	(15)

NOTE 7. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of June 30, ~~2021~~2022 (in millions):


		Aircraft Commitments(a)		Capacity Purchase Agreements (b)			Aircraft Commitments(a)		Capacity Purchase Agreements (b)
Remainder of 2021		$	107	$	82
2022		1,458		173
Remainder of 2022						Remainder of 2022	$	834	$	92
2023	2023	1,207		178		2023	1,932		188
2024	2024	291		183		2024	388		194
2025	2025	76		188		2025	124		201
2026						2026	113		203
Thereafter	Thereafter	12		877		Thereafter	275		815
Total	Total	$	3,151	$	1,681	Total	$	3,666	$	1,693

(a)Includes non-cancelable contractual commitments for aircraft and engines, aircraft maintenance and parts management. Option deliveries are excluded from minimum commitments until exercise.

(b)Includes all non-aircraft lease costs associated with capacity purchase agreements.

Aircraft Commitments

Aircraft purchase commitments include non-cancelable contractual commitments for aircraft and engines. AsIn the second quarter of ~~June 30, 2021, Alaska had commitments~~2022, Horizon amended its aircraft purchase agreement with Embraer, adding 8 firm E175 deliveries between 2023 and 2026 and 13 options to purchase ~~63 B737-9 MAX~~additional aircraft with ~~contracted~~ deliveries between ~~2021~~2024 and ~~2024.~~2025. The aircraft covered by the second quarter amendment may be assigned by Horizon to another entity. Horizon intends to take delivery of and operate all 8 firm E175 aircraft.

Details are outlined in the table below. Future minimum contractual payments for these aircraft reflect the expected delivery timing, but are also subject to change. Horizon also has commitments to purchase 12 E175 aircraft with deliveries between 2022 and 2025. Alaska has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2024 through 2027. In addition, Alaska has options to purchase 39 B737-9 MAX aircraft, and Horizon has options to purchase 21 E175 aircraft. The cancelable purchase commitments and option payments are not reflected in the table above.


	Firm Orders	Options	Total
Aircraft Type	2022-2026	2024-2026	2022 - 2026
Boeing 737-8	10	—	10
Boeing 737-9	44	11	55
Boeing 737-10	6	41	47
Embraer E175	20	13	33
Total	80	65	145

Contingencies

The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected. Liabilities for litigation related contingencies are recorded when a loss is determined to be probable and estimable.

In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws. The court certified a class of approximately 1,800 flight attendants in November 2016. The Company ~~believes the claims in this case are without factual and legal merit.~~

~~In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as~~pursued numerous appeal paths following a ~~successor-in-interest to Virgin America, responsible for various damages and penalties sought by the class members. On~~ February 4, 2019 ~~the Court entered final judgment~~federal district court order against Virgin America and Alaska Airlines ~~in the amount of~~awarding plaintiffs approximately $78 ~~million. It did not award injunctive relief against Alaska Airlines. In February 2021, an~~million, including approximately $25 million in penalties under California’s Private Attorneys General Act (PAGA). An appellate court reversed portions of the lower court decision and significantly reduced the ~~judgment.~~PAGA penalties and total judgment value. In June 2022, the U.S. Supreme Court declined to take the Company’s appeal for a conclusive ruling that the California laws on which the judgment is based are invalid as applied to airlines. The ~~determination of~~decision leaves open the possibility that other states in the Ninth Circuit judicial district may attempt to apply similar laws to airlines.

The final total judgment amount has not been ~~completed~~determined by the lower court as of the date of this filing. Based on the facts and circumstances available, the Company believes the range of potential loss to be between $0 and $22 million, and holds an accrual for $22 million in Other accrued liabilities on the condensed consolidated balance sheets. ~~It did not award injunctive relief against Alaska Airlines.~~

The Company is ~~seeking an appellate court ruling that the California laws on which the judgment is based are invalid as applied~~analyzing a range of potential options to ~~national airlines pursuant to the U.S. Constitution~~balance new compliance obligations with operational and federal law and for other employment law and improper class certification reasons. The Company remains confident that a higher court will respect the federal preemption principles that were enacted to shield inter-state common carriers from a patchworklabor considerations. Some or all of ~~state and local wage and hour regulations such as those at issue in this case and agree with the Company's other bases for appeal.~~

The Company is involved in other litigation around the application of state and local employment laws, like many air carriers. Our defenses are similar to those identified above, including that the state and local laws are preempted by federal law and are unconstitutional because they impede interstate commerce. None of these additional disputes are material.

these solutions may have an adverse impact on the Company’s operations and financial position due in part to the unresolved conflicts between the laws and federal regulations applicable to airlines.

NOTE 8. SHAREHOLDERS' EQUITY

Common Stock Repurchase

In August 2015, the Board of Directors authorized a $1 billion share repurchase program. ~~As of June 30, 2021, the~~The Company ~~has~~ repurchased 7.6 million shares for $544 million under this program. In March 2020, subject to restrictions under the Coronavirus Aid, Relief, and Economic Securities (CARES) Act, the Company suspended the share repurchase program indefinitely.

CARES Act Warrant Issuances

As additional taxpayer protection required under ~~PSP programs, during~~ the ~~six months ended June 30, 2021~~Payroll Support Program (PSP) under the CARES Act, the Company granted the Treasury a total of ~~539,508~~1,455,438 warrants to purchase ~~Alaska Air Group (ALK)~~ALK common ~~stock. The~~stock in 2020 and 2021. An additional 427,080 warrants were issued in conjunction with a draw on the CARES Act Loan in 2020. These warrants are non-voting, freely transferable, may be settled as net shares or in cash at ~~Alaska's~~the Company's option, and have a five-year term.

~~Additionally, in conjunction with the October 2020 draw on the CARES Act Loan, the Company granted the Treasury 427,080 warrants to purchase ALK common stock.~~ The value of the warrants was estimated using a Black-Scholes option pricing ~~model, and the relative~~model. The total fair value of ~~the~~all outstanding warrants ~~of $6~~was $30 million, ~~was~~ recorded in stockholders' ~~equity.~~equity at issuance.

Total warrants outstanding are as follows as of June 30, ~~2021:~~2022:


		Number of shares of ALK common stock	Strike Price		Number of warrants outstanding	Strike Price
PSP 1	PSP 1	928,127	31.61	PSP 1	928,127	31.61
CARES Act loan warrants	CARES Act loan warrants	427,080	31.61	CARES Act loan warrants	427,080	31.61
PSP 2	PSP 2	305,499	52.25	PSP 2	305,499	52.25
PSP 3	PSP 3	221,812	66.39	PSP 3	221,812	66.39
Total		1,882,518
Outstanding June 30, 2022				Outstanding June 30, 2022	1,882,518

Accumulated other comprehensive loss

~~Components~~A roll forward of the amounts included in accumulated other comprehensive loss, net of tax (in millions):
June 30, 2021 December 31, 2020
Related to marketable securities $ 10 $ 23
Related to employee benefit plans (485) (498)
Related to interest rate derivatives (12) (19)
Total $ (487) $ (494)
, is shown below for the three and six months ended June 30, 2022:


	Marketable Securities		Employee Benefit Plan		Interest Rate Derivatives		Total
Balance at March 31, 2022, net of tax effect of $93	$	(44)	$	(251)	$	3	$	(292)
Reclassifications into earnings, net of tax impact of $1	2		—		—		2
Change in value, net of tax impact of $4	(22)		—		4		(18)
Balance at June 30, 2022, net of tax effect of $98	$	(64)	$	(251)	$	7	$	(308)

Balance at December 31, 2021, net of tax effect of $83	$	(4)	$	(252)	$	(6)	$	(262)
Reclassifications into earnings, net of tax impact of $1	4		1		—		5
Change in value, net of tax impact of $14	(64)		—		13		(51)
Balance at June 30, 2022, net of tax effect of $98	$	(64)	$	(251)	$	7	$	(308)

Earnings (Loss) Per Share (EPS)

EPS is calculated by dividing net income by the average number of common shares outstanding plus the number of additional common shares that would have been outstanding assuming the exercise of in-the-money stock options, ~~and~~ restricted stock units, and warrants, using the treasury-stock method. Loss per share is calculated by dividing net loss by the average number of basic shares outstanding. For the three and six months ended June 30, 2022 and June 30, 2021, anti-dilutive shares excluded from the calculation of EPS were not material.

NOTE 9. OPERATING SEGMENT INFORMATION

Alaska Air Group has two operating airlines – Alaska and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon ~~as well as with~~and SkyWest, under which Alaska receives all passenger revenues.

Under U.S. GAAP, operating segments are defined as components of a business for which there is discrete financial information that is regularly assessed by the Chief Operating Decision Maker (CODM) in making resource allocation decisions. Financial performance for the operating airlines and CPAs is managed and reviewed by the Company's CODM as part of three reportable operating segments:

•Mainline - includes scheduled air transportation on Alaska's Boeing or Airbus jet aircraft for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, Costa Rica, and ~~Costa Rica.~~Belize.

•Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. and Canada under a CPA. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.

•Horizon - includes the capacity sold to Alaska under CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.

The CODM makes resource allocation decisions for these reporting segments based on flight profitability data, aircraft type, route economics and other financial information.

The "Consolidating and Other" column reflects Air Group parent company activity, McGee Air Services, consolidating entries and other immaterial business units of the company. The “Air Group Adjusted” column represents a non-GAAP measure that is used by the Company's CODM to evaluate performance and allocate resources. Adjustments are further explained below in reconciling to consolidated GAAP results.

Operating segment information is as follows (in millions):


		Three Months Ended June 30, 2021															Three Months Ended June 30, 2022
		Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated			Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues	Operating Revenues															Operating Revenues
Passenger revenues	Passenger revenues	$	1,072	$	280	$	0	$	0	$	1,352	$	0	$	1,352	Passenger revenues	$	2,028	$	390	$	—	$	—	$	2,418		$	—	$	2,418
CPA revenues	CPA revenues	0		0		111		(111)		0		0		0		CPA revenues	—		—		101		(101)		—			—		—
Mileage Plan other revenue	Mileage Plan other revenue	102		16		0		0		118		0		118		Mileage Plan other revenue	159		16		—		—		175			—		175
Cargo and other	Cargo and other	55		0		0		2		57		0		57		Cargo and other	64		—		—		1		65			—		65
Total Operating Revenues	Total Operating Revenues	1,229		296		111		(109)		1,527		0		1,527		Total Operating Revenues	2,251		406		101		(100)		2,658			—		2,658
Operating Expenses	Operating Expenses															Operating Expenses
Operating expenses, excluding fuel	Operating expenses, excluding fuel	984		286		91		(127)		1,234		(530)		704		Operating expenses, excluding fuel	1,262		289		98		(100)		1,549			146		1,695
Economic fuel		253		66		0		1		320		(46)		274
Fuel expense																Fuel expense	617		119		—		—		736			40		776
Total Operating Expenses	Total Operating Expenses	1,237		352		91		(126)		1,554		(576)		978		Total Operating Expenses	1,879		408		98		(100)		2,285			186		2,471
Nonoperating Income (Expense)
Interest income		6		0		0		0		6		0		6
Interest expense		(34)		0		(5)		0		(39)		0		(39)
Interest capitalized		3		0		0		0		3		0		3
Other - net		9		0		0		0		9		0		9
Total Nonoperating Income (Expense)		(16)		0		(5)		0		(21)		0		(21)

Non-operating Income (Expense)																Non-operating Income (Expense)	3		—		(5)		—		(2)			—		(2)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(24)	$	(56)	$	15	$	17	$	(48)	$	576	$	528	Income (Loss) Before Income Tax	$	375	$	(2)	$	(2)	$	—	$	371		$	(186)	$	185
Pretax Margin																Pretax Margin									14.0		%			7.0		%

		Three Months Ended June 30, 2020															Three Months Ended June 30, 2021
		Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated			Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues	Operating Revenues															Operating Revenues
Passenger revenues	Passenger revenues	$	225	$	84	$	0	$	0	$	309	$	0	$	309	Passenger revenues	$	1,072	$	280	$	—	$	—	$	1,352		$	—	$	1,352
CPA revenues	CPA revenues	0		0		81		(81)		0		0		0		CPA revenues	—		—		111		(111)		—			—		—
Mileage Plan other revenue	Mileage Plan other revenue	56		17		0		0		73		0		73		Mileage Plan other revenue	102		16		—		—		118			—		118
Cargo and other	Cargo and other	39		0		0		0		39		0		39		Cargo and other	55		—		—		2		57			—		57
Total Operating Revenues	Total Operating Revenues	320		101		81		(81)		421		0		421		Total Operating Revenues	1,229		296		111		(109)		1,527			—		1,527
Operating Expenses	Operating Expenses															Operating Expenses
Operating expenses, excluding fuel	Operating expenses, excluding fuel	746		210		68		(82)		942		(292)		650		Operating expenses, excluding fuel	984		286		91		(127)		1,234			(530)		704
Economic fuel		45		20		0		0		65		(6)		59
Fuel expense																Fuel expense	253		66		—		1		320			(46)		274
Total Operating Expenses	Total Operating Expenses	791		230		68		(82)		1,007		(298)		709		Total Operating Expenses	1,237		352		91		(126)		1,554			(576)		978
Nonoperating Income (Expense)
Interest income		11		0		0		(4)		7		0		7
Interest expense		(18)		0		(5)		6		(17)		0		(17)
Interest capitalized		1		0		0		0		1		0		1
Other - net		6		0		0		0		6		0		6
Total Nonoperating Income (Expense)		0		0		(5)		2		(3)		0		(3)

Non-operating Income (Expense)																Non-operating Income (Expense)	(16)		—		(5)		—		(21)			—		(21)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(471)	$	(129)	$	8	$	3	$	(589)	$	298	$	(291)	Income (Loss) Before Income Tax	$	(24)	$	(56)	$	15	$	17	$	(48)		$	576	$	528
Pretax Margin																Pretax Margin									(3.1)		%			34.6		%


		Six Months Ended June 30, 2021															Six Months Ended June 30, 2022
		Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated			Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues	Operating Revenues															Operating Revenues
Passenger revenues	Passenger revenues	$	1,578	$	433	$	0	$	0	$	2,011	$	0	$	2,011	Passenger revenues	$	3,271	$	658	$	—	$	—	$	3,929		$	—	$	3,929
CPA revenues	CPA revenues	0		0		215		(215)		0		0		0		CPA revenues	—		—		195		(195)		—			—		—
Mileage Plan other revenue	Mileage Plan other revenue	182		30		0		0		212		0		212		Mileage Plan other revenue	259		28		—		—		287			—		287
Cargo and other	Cargo and other	99		0		0		2		101		0		101		Cargo and other	121		—		—		2		123			—		123
Total Operating Revenues	Total Operating Revenues	1,859		463		215		(213)		2,324		0		2,324		Total Operating Revenues	3,651		686		195		(193)		4,339			—		4,339
Operating Expenses	Operating Expenses															Operating Expenses
Operating expenses, excluding fuel	Operating expenses, excluding fuel	1,877		551		179		(236)		2,371		(912)		1,459		Operating expenses, excluding fuel	2,456		551		197		(194)		3,010			221		3,231
Economic fuel		427		118		0		0		545		(68)		477
Fuel expense																Fuel expense	998		192		—		—		1,190			(67)		1,123
Total Operating Expenses	Total Operating Expenses	2,304		669		179		(236)		2,916		(980)		1,936		Total Operating Expenses	3,454		743		197		(194)		4,200			154		4,354
Nonoperating Income (Expense)
Interest income		13		0		0		0		13		0		13
Interest expense		(61)		0		(10)		0		(71)		0		(71)
Interest capitalized		6		0		0		0		6		0		6
Other - net		19		0		0		0		19		0		19
Total Nonoperating Income (Expense)		(23)		0		(10)		0		(33)		0		(33)

Non-operating Income (Expense)																Non-operating Income (Expense)	4		—		(10)		—		(6)			—		(6)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(468)	$	(206)	$	26	$	23	$	(625)	$	980	$	355	Income (Loss) Before Income Tax	$	201	$	(57)	$	(12)	$	1	$	133		$	(154)	$	(21)
Pretax Margin																Pretax Margin									3.1		%			(0.5)		%

		Six Months Ended June 30, 2020															Six Months Ended June 30, 2021
		Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated			Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues	Operating Revenues															Operating Revenues
Passenger revenues	Passenger revenues	$	1,459	$	331	$	0	$	0	$	1,790	$	0	$	1,790	Passenger revenues	$	1,578	$	433	$	—	$	—	$	2,011		$	—	$	2,011
CPA revenues	CPA revenues	0		0		186		(186)		0		0		0		CPA revenues	—		—		215		(215)		—			—		—
Mileage Plan other revenue	Mileage Plan other revenue	154		28		0		0		182		0		182		Mileage Plan other revenue	182		30		—		—		212			—		212
Cargo and other	Cargo and other	83		0		0		2		85		0		85		Cargo and other	99		—		—		2		101			—		101
Total Operating Revenues	Total Operating Revenues	1,696		359		186		(184)		2,057		0		2,057		Total Operating Revenues	1,859		463		215		(213)		2,324			—		2,324
Operating Expenses	Operating Expenses															Operating Expenses
Operating expenses, excluding fuel	Operating expenses, excluding fuel	1,905		479		160		(192)		2,352		(129)		2,223		Operating expenses, excluding fuel	1,877		551		179		(236)		2,371			(912)		1,459
Economic fuel		358		82		0		0		440		3		443
Fuel expense																Fuel expense	427		118		—		—		545			(68)		477
Total Operating Expenses	Total Operating Expenses	2,263		561		160		(192)		2,792		(126)		2,666		Total Operating Expenses	2,304		669		179		(236)		2,916			(980)		1,936
Nonoperating Income (Expense)
Interest income		25		0		0		(9)		16		0		16
Interest expense		(30)		0		(10)		10		(30)		0		(30)
Interest capitalized		4		0		0		0		4		0		4
Other - net		12		0		0		(1)		11		0		11
Total Nonoperating Income (Expense)		11		0		(10)		0		1		0		1

Non-operating Income (Expense)																Non-operating Income (Expense)	(23)		—		(10)		—		(33)			—		(33)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(556)	$	(202)	$	16	$	8	$	(734)	$	126	$	(608)	Income (Loss) Before Income Tax	$	(468)	$	(206)	$	26	$	23	$	(625)		$	980	$	355
Pretax Margin																Pretax Margin									(26.9)		%			15.3		%

(a)Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units.

(b)The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges. See Note A in the accompanying pages for further information.

(c)Includes Payroll Support Program grant wage offsets, special items and mark-to-market fuel hedge accounting adjustments.

Total assets were as follows (in millions):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Mainline	Mainline	$	19,920	$	19,754	Mainline	$	20,312	$	19,258
Horizon	Horizon	1,251		1,170		Horizon	1,125		1,212
Consolidating & Other	Consolidating & Other	(6,515)		(6,878)		Consolidating & Other	(6,637)		(6,519)
Consolidated	Consolidated	$	14,656	$	14,046	Consolidated	$	14,800	$	13,951


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our company, segment operations and the present business environment. MD&A is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report’s introductory cautionary note and the risks mentioned in "Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. This overview summarizes the MD&A, which includes the following sections:

•Second Quarter Review—highlights from the second quarter of ~~2021~~2022 outlining some of the major events that ~~happened~~occurred during the period and how they affected our financial performance.

•Results of Operations—an in-depth analysis of our ~~revenues~~revenue by segment and our expenses from a consolidated perspective for the three and six months ended June 30, ~~2021.~~2022. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of the remainder of ~~2021.~~2022.

•Liquidity and Capital Resources—an overview of our financial position, analysis of cash flows, and relevant contractual obligations and commitments.

SECOND QUARTER REVIEW

Business Recovery and ~~Financial Outlook~~Second Quarter Results

~~Second~~We recorded consolidated pretax income for the second quarter ~~2021 results indicate we have reached a turning point in our recovery from the significant impacts~~ of ~~the COVID-19 pandemic. Early in the pandemic we shared plans~~2022 under GAAP of $185 million, compared to return capacity in a prudent manner, only when demand supported doing so. We also established structural cost removal targets that have positioned the airline well for returning to profitability in recovery. With the strong returnconsolidated pretax income of ~~demand~~$528 million in the second quarter of 2021. On an adjusted basis, we reported ~~an adjusted net~~consolidated pretax income for the quarter of $371 million, compared to consolidated pretax loss ~~that was significantly better than previous quarterly losses, and we currently expect double-digit adjusted pre-tax profit margins~~of $48 million in the ~~third quarter.~~same period of 2021. Our airlines faced challenges early in the second quarter as we ramped staffing to meet historic levels of demand. By June, we stabilized the operation and returned reliability to our standard, resulting in industry-leading on-time performance for the month. Despite these operational difficulties, we generated record quarterly revenue of $2.7 billion, driven by yield strength and record load factors for each month of the quarter, as well as strong revenue growth from our Mileage Plan program.

InAs we ramp capacity back to 2019 levels, we have experienced increases to non-fuel operating expenses. Costs have also been impacted by inflationary pressures and supply chain constraints. Non-fuel operating expense, excluding special items, rose 26% over the prior year period, driven by a combination of increased departure-related costs on 16% more capacity flown and higher wages and training costs as we hire new employees. Second quarter fuel prices were at historically high levels. Although our hedging program provided a benefit of $88 million for the quarter, total fuel cost exceeded 2021 levels due primarily to a 98% increase in economic price per gallon. We also incurred special charges of $146 million in the second half of 2021, we remain committed to returning capacity in a deliberate manner to match the return of leisure and business demand in the markets we serve. We also continue to return to 2019 capacity levels no later than the summerquarter of 2022 ~~though we have increased~~related to our ~~near-term flying expectations as we ramp towards that target. To support this plan and prepare for growth beyond 2022,~~fleet transition, compared to a special benefit of $503 million recorded in the second quarter of 2021 we exercised options for 13 Boeing 737-9 MAX with deliveries in 2023 and 2024, and nine E175 to be operated by Horizon Air with deliveries in 2022 and 2023. In addition, we expanded our long-term capacity agreement with SkyWest by eight aircraft beginning in 2022.

Our guidance for 2021 compares against 2019 as we believe it provides a more meaningful indication of the pace and quality of recovery to pre-pandemic levels. For the third quarter, we are planning for capacity to be approximately 17% to 20% below the same period in 2019, coupled with increased passenger counts as leisure travel continues through the summer months and business travel rebuilds as workplaces reopen. As we continue to be disciplined with returning capacity and optimizing the aircraft gauge for flown routes, we anticipate third quarter load factors to range between 82% and 85%.

The guidance we have provided and our outlook more broadly are sensitive to health trends, exposure to variants of the COVID-19 virus, and regulations and restrictions imposed by state, local and federal authorities. Our plans will be responsive to emerging information and the guidance we have provided above is subject to greater uncertainty than we have historically experienced. Our people continue to focus on keeping costs low, running a great operation, and welcoming guests back to travel with Next-Level Care to ensure they are safe and comfortable when they fly. These competitive advantages we have cultivated over many years will continue to serve us well in 2021 and beyond, and we are confident that we are prepared to meet the challenges ahead and that we will emergeprimarily from ~~the pandemic a stronger and more resilient airline.~~

~~Sustainability Updates~~

As we move beyond the impacts of the COVID-19 pandemic, we have shifted our focus back to our 2025 strategic plan, which was announced in 2019. During the second quarter, we continued to make strides towards our goals of increasing our commitments to diversity, equity, and inclusion, as well as expanding our sustainability efforts. As part of these commitments, we announced a partnership with Boeing on the 737-9 MAX ecoDemonstrator program, aimed at testing advanced technologies to enhance the safety and sustainability of air travel. In the second quarter we also announced we are the first airline to implement network optimization software, Flyways, which uses artificial intelligence and machine learning to optimize air traffic and enable more fuel-efficient flight paths for aggregate savings of fuel, carbon emissions and time.

As a reflection of the importance of the commitments made, we continue to tie a portion of long-term executive compensation to achievement of diversity goals. Additionally, we have incorporated a carbon emission target into our company-wide performance-based pay program, for which we currently expect to meet the targeted goal.

~~Financial Overview~~

Our consolidated pre-tax income for the second quarter of 2021 was $528 million, compared to a pre-tax loss of $291 million in the second quarter of 2020. The $819 million improvement is primarily driven by an increase of $1.1 billion in operating revenue and $141 million of increasedPayroll Support Program grant wage offsets provided by extensions of the PSP of the CARES Act. These improvements were offset by a $292 million increase in non-fuel operating costs, excluding special items, and a $215 million increase in fuel expense as the operation ramps up to meet increased demand.offsets.

See “Results of Operations” below for further discussion of changes in ~~revenues~~revenue and operating expenses as compared to 2021, and our reconciliation of non-GAAP measures to the most directly comparable GAAP measure. A glossary of financial terms can be found at the end of this Item 2.

Environmental, Social and Governance Updates

In order to achieve our long-term target of zero carbon emissions by 2040, the use of sustainable aviation fuel (SAF) will play a crucial role. During the quarter, we signed an agreement with Aemetis to purchase 13 million gallons of SAF to be delivered over the seven year term of the agreement. Subsequent to quarter end, we announced a partnership with Microsoft and Twelve, a carbon transformation company, to advance the use of SAF within the commercial airline industry.

Delivering on our diversity, equity and inclusion goals is critical to our long-term success. As a reflection of our commitment to these goals, we have tied a portion of long-term executive compensation to achievement of diversity goals. Additionally, we

have incorporated a carbon emissions target into our company-wide Performance Based Pay Plan, which is currently tracking to target achievement.

Labor Update

In April 2022, Alaska's dispatchers represented by the Transport Workers Union ratified an agreement that includes increased pay with added steps to ensure wage rates remain competitive, enhanced benefits, and streamlined training. In May 2022, Horizon's mechanics represented by the Aircraft Mechanics Fraternal Association ratified an agreement that includes increased pay and license premiums. In June 2022, Alaska reached a tentative agreement with employees represented by the International Association of Machinists and Aerospace workers; voting will be completed in the third quarter.

Alaska is actively negotiating for a new contract with its mainline pilots represented by the Air Line Pilots Association, whose contract became amendable in April 2020.

Outlook

For the third quarter and remainder of the year, we remain committed to best positioning our airlines for long-term sustainable growth. We have moderated our capacity plans for the remainder of the year to stabilize our operation, improve our training throughput and execute on our fleet transition plans. As a result, we now anticipate our capacity for the third quarter to be down 5% to 8% versus 2019, with full year capacity down 8% to 9%. Lower capacity, coupled with pressures from wages and training costs, has shifted our expectation for third quarter CASMex to be up 16% to 19% over 2019. Continued strength in the demand environment is expected to generate revenue 16% to 19% over 2019 levels. For the full year, we continue to anticipate adjusted pretax margins will range between 6% and 9%.

Although our operations have stabilized, ongoing industry-wide labor shortages and supply chain delays could have a material impact on our results moving forward. Our plans will continue to be responsive to emerging information and the guidance we have provided above is subject to greater uncertainty than we have historically experienced. As we leverage our network, Mileage Plan program, and fleet for growth, our people are focused on keeping costs low and running a strong operation. These are competitive advantages we have cultivated over many years that will continue to serve us well in 2022 and beyond.

RESULTS OF OPERATIONS

ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS

We believe disclosure of earnings excluding the impact of aircraft fuel, the Payroll Support Program grant wage offset and other special items ~~mark-to-market gains or losses or other individual special revenues or expenses~~ is useful information to investors because:

•By excluding fuel expense and certain ~~special~~other items, ~~(including~~such as the Payroll Support Program grant wage offset ~~impairment~~ and ~~restructuring charges and merger-related costs)~~other special items, from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction initiatives emerging from the COVID-19 pandemic. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can lead to 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 productivity, airport costs, maintenance costs, etc., which are more controllable by management.

•Cost per ASM (CASM) excluding fuel and certain ~~special~~other items, such as the Payroll Support Program grant wage offset ~~impairment~~ and ~~restructuring charges and merger-related costs,~~other special items, is one of the most important measures used by management and by ~~the Air Group~~our Board of Directors in assessing quarterly and annual cost performance.

•Adjusted income before income tax (and other items as specified in our plan documents) is an important metric for the employee annual cash incentive plan, which covers the majority of employees within the Air Group organization.

•CASM excluding fuel and certain ~~special~~other items is a measure commonly used by industry analysts and we believe it is an important metric by which they have historically compared our airline to others in the industry. The measure is also the subject of frequent questions from investors.

•Adjusted income before income tax (and other items as specified in our plan documents) is an important metric for the employee annual incentive plan, which covers the majority of employees within the Alaska Air Group organization.

•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 these items as noted above

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 unit ~~revenues,~~revenue, we do not, ~~(nor~~nor are we able ~~to)~~to, evaluate unit ~~revenues~~revenue excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit ~~revenues~~revenue 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.

Although we are presenting these non-GAAP amounts for the reasons above, investors and other readers should not necessarily conclude that these amounts are non-recurring, infrequent, or unusual in nature.

OPERATING STATISTICS SUMMARY (unaudited)

Below are operating statistics we use to measure operating performance. We often refer to unit ~~revenues~~revenue and adjusted unit costs, which are non-GAAP measures.


		Three Months Ended June 30,			Six Months Ended June 30,				Three Months Ended June 30,			Six Months Ended June 30,
		2021	2020	Change	2021	2020	Change		2022	2021	Change	2022	2021	Change
Consolidated Operating Statistics:(a)	Consolidated Operating Statistics:(a)							Consolidated Operating Statistics:(a)
Revenue passengers (000)	Revenue passengers (000)	8,712	1,485	486.7%	13,379	10,417	28.4%	Revenue passengers (000)	11,005	8,712	26.3%	19,700	13,379	47.2%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	10,334	1,654	524.8%	15,727	12,310	27.8%	RPMs (000,000) "traffic"	13,746	10,334	33.0%	24,332	15,727	54.7%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	13,413	4,307	211.4%	23,810	19,612	21.4%	ASMs (000,000) "capacity"	15,611	13,413	16.4%	29,394	23,810	23.5%
Load factor	Load factor	77.0%	38.4%	38.6 pts	66.1%	62.8%	3.3 pts	Load factor	88.1%	77.0%	11.1 pts	82.8%	66.1%	16.7 pts
Yield	Yield	13.09¢	18.68¢	(29.9)%	12.79¢	14.54¢	(12.0)%	Yield	17.59¢	13.09¢	34.4%	16.15¢	12.79¢	26.3%
RASM	RASM	11.38¢	9.77¢	16.5%	9.76¢	10.49¢	(7.0)%	RASM	17.03¢	11.38¢	49.6%	14.76¢	9.76¢	51.2%
CASM excluding fuel and special items(b)	CASM excluding fuel and special items(b)	9.20¢	21.87¢	(57.9)%	9.95¢	12.00¢	(17.1)%	CASM excluding fuel and special items(b)	9.92¢	9.20¢	7.8%	10.24¢	9.95¢	2.9%
Economic fuel cost per gallon(b)	Economic fuel cost per gallon(b)	$1.90	$1.20	58.3%	$1.85	$1.77	4.5%	Economic fuel cost per gallon(b)	$3.76	$1.90	97.9%	$3.23	$1.85	74.6%
Fuel gallons (000,000)	Fuel gallons (000,000)	168	54	211.1%	294	248	18.5%	Fuel gallons (000,000)	196	168	16.7%	368	294	25.2%
ASMs per fuel gallon	ASMs per fuel gallon	79.8	79.8	—%	81.0	79.1	2.4%	ASMs per fuel gallon	79.6	79.8	(0.3)%	79.9	81.0	(1.4)%
Average full-time equivalent employees (FTEs)	Average full-time equivalent employees (FTEs)	19,001	15,836	20.0%	18,071	19,115	(5.5)%	Average full-time equivalent employees (FTEs)	22,603	19,001	19.0%	22,092	18,071	22.3%
Mainline Operating Statistics:	Mainline Operating Statistics:							Mainline Operating Statistics:
Revenue passengers (000)	Revenue passengers (000)	6,151	905	579.7%	9,302	7,580	22.7%	Revenue passengers (000)	8,321	6,151	35.3%	14,887	9,302	60.0%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	8,966	1,276	602.7%	13,555	10,858	24.8%	RPMs (000,000) "traffic"	12,460	8,966	39.0%	21,972	13,555	62.1%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	11,611	3,363	245.3%	20,464	17,060	20.0%	ASMs (000,000) "capacity"	14,052	11,611	21.0%	26,439	20,464	29.2%
Load factor	Load factor	77.2%	37.9%	39.3 pts	66.2%	63.6%	2.6 pts	Load factor	88.7%	77.2%	11.5 pts	83.1%	66.2%	16.9 pts
Yield	Yield	11.96¢	17.63¢	(32.2)%	11.64¢	13.44¢	(13.4)%	Yield	16.28¢	11.96¢	36.1%	14.89¢	11.64¢	27.9%
RASM	RASM	10.59¢	9.52¢	11.2%	9.09¢	9.94¢	(8.6)%	RASM	16.02¢	10.59¢	51.3%	13.81¢	9.09¢	51.9%
CASM excluding fuel and special items(b)	CASM excluding fuel and special items(b)	8.48¢	22.19¢	(61.8)%	9.17¢	11.17¢	(17.9)%	CASM excluding fuel and special items(b)	8.98¢	8.48¢	5.9%	9.29¢	9.17¢	1.3%
Economic fuel cost per gallon(b)	Economic fuel cost per gallon(b)	$1.88	$1.20	56.7%	$1.84	$1.78	3.4%	Economic fuel cost per gallon(b)	$3.74	$1.88	98.9%	$3.21	$1.84	74.4%
Fuel gallons (000,000)	Fuel gallons (000,000)	135	38	255.3%	233	201	15.9%	Fuel gallons (000,000)	165	135	22.2%	311	233	33.5%
ASMs per fuel gallon	ASMs per fuel gallon	86.0	88.5	(2.8)%	87.8	84.9	3.4%	ASMs per fuel gallon	85.2	86.0	(0.9)%	85.0	87.8	(3.2)%
Average FTEs	Average FTEs	14,021	12,340	13.6%	13,247	14,579	(9.1)%	Average FTEs	17,315	14,021	23.5%	16,825	13,247	27.0%
Aircraft utilization	Aircraft utilization	9.9	5.6	76.8%	9.2	8.8	4.5%	Aircraft utilization	10.1	9.9	2.0%	9.8	9.2	6.5%
Average aircraft stage length	Average aircraft stage length	1,320	1,144	15.4%	1,313	1,270	3.4%	Average aircraft stage length	1,363	1,320	3.3%	1,349	1,313	2.7%
Operating fleet(d)	Operating fleet(d)	202	225	(23) a/c	202	225	(23) a/c	Operating fleet(d)	233	202	31 a/c	233	202	31 a/c
Regional Operating Statistics:(c)	Regional Operating Statistics:(c)							Regional Operating Statistics:(c)
Revenue passengers (000)	Revenue passengers (000)	2,562	580	341.7%	4,077	2,837	43.7%	Revenue passengers (000)	2,685	2,562	4.8%	4,813	4,077	18.1%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	1,367	378	261.6%	2,172	1,452	49.6%	RPMs (000,000) "traffic"	1,285	1,367	(6.0)%	2,360	2,172	8.7%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	1,802	945	90.7%	3,346	2,552	31.1%	ASMs (000,000) "capacity"	1,559	1,802	(13.5)%	2,955	3,346	(11.7)%
Load factor	Load factor	75.9%	40.0%	35.9 pts	64.9%	56.9%	8.0 pts	Load factor	82.4%	75.9%	6.5 pts	79.9%	64.9%	15.0 pts
Yield	Yield	20.48¢	22.12¢	(7.4)%	19.95¢	22.80¢	(12.5)%	Yield	30.35¢	20.48¢	48.2%	27.88¢	19.95¢	39.7%
RASM	RASM	16.41¢	10.63¢	54.4%	13.84¢	14.07¢	(1.6)%	RASM	26.04¢	16.41¢	58.7%	23.21¢	13.84¢	67.7%
Operating fleet		94	94	— a/c	94	94	— a/c
Operating fleet(d)								Operating fleet(d)	104	94	10 a/c	104	94	10 a/c

(a)Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.

(b)See reconciliation of this non-GAAP measure to the most directly related GAAP measure in the accompanying pages.

(c)Data presented includes information related to flights operated by Horizon and third-party carriers.

(d)Excludes all aircraft removed from operating service, as well as new aircraft which have not yet entered operating service.

Given the unusual nature of 2021 and 2020, we believe that some analysis of specific financial and operational results compared to 2019 provides meaningful insight. The table below includes comparative results from ~~2021~~2022 to 2019.

FINANCIAL INFORMATION AND OPERATING STATISTICS - 2019 RESULTS (unaudited)
Alaska Air Group, Inc.
Three Months Ended June 30, Six Months Ended June 30,
2021 2019 Change 2021 2019 Change
Passenger revenue $ 1,352 $ 2,111 (36) % $ 2,011 $ 3,827 (47) %
Mileage plan other revenue 118 118 — % 212 228 (7) %
Cargo and other 57 59 (3) % 101 109 (7) %
Total operating revenues $ 1,527 $ 2,288 (33) % $ 2,324 $ 4,164 (44) %
Operating expense, excluding fuel and special items $ 1,234 $ 1,414 (13) % $ 2,371 $ 2,819 (16) %
Economic fuel 274 502 (45) % 477 922 (48) %
Special items (530) 8 NM (912) 34 NM
Total operating expenses $ 978 $ 1,924 (49) % $ 1,936 $ 3,775 (49) %
Total nonoperating expense (21) (13) 62 % (33) (32) 3 %
Income (loss) before income tax $ 528 $ 351 50 % $ 355 $ 357 (1) %
Consolidated Operating Statistics(a):
Revenue passengers (000) 8,712 12,026 (28) % 13,379 22,442 (40) %
RPMs (000,000) "traffic" 10,334 14,638 (29) % 15,727 27,087 (42) %
ASMs (000,000) "capacity" 13,413 16,980 (21) % 23,810 32,487 (27) %
Load Factor 77.0% 86.2% (9.2) pts 66.1% 83.4% (17.3) pts
Yield 13.09¢ 14.43¢ (9) % 12.79¢ 14.13¢ (9) %
RASM 11.38¢ 13.48¢ (16) % 9.76¢ 12.82¢ (24) %
CASMex 9.20¢ 8.33¢ 10 % 9.95¢ 8.68¢ 15 %
FTEs 19,001 21,921 (13) % 18,071 21,876 (17) %

~~(a)2019 comparative operating statistics have been recalculated using the information presented above, and as filed in our second quarter 2019 Form 10-Q.~~


FINANCIAL INFORMATION AND OPERATING STATISTICS - 2022 Compared to 2019 (unaudited)
Alaska Air Group, Inc.

	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2019		Change	2022		2019		Change
Passenger revenue	$	2,418	$	2,111	15%	$	3,929	$	3,827	3%
Mileage plan other revenue	175		118		48%	287		228		26%
Cargo and other	65		59		10%	123		109		13%
Total operating revenue	$	2,658	$	2,288	16%	$	4,339	$	4,164	4%

Operating expense, excluding fuel and special items	$	1,549	$	1,414	10%	$	3,010	$	2,819	7%
Aircraft fuel, including hedging gains and losses	776		502		55%	1,123		922		22%
Special items	146		8		NM	221		34		NM
Total operating expenses	$	2,471	$	1,924	28%	$	4,354	$	3,775	15%

Total non-operating expense	(2)		(13)		(85)%	(6)		(32)		(81)%
Income (loss) before income tax	$	185	$	351	(47)%	$	(21)	$	357	(106)%

Consolidated Operating Statistics:
Revenue passengers (000)	11,005		12,026		(8)%	19,700		22,442		(12)%
RPMs (000,000) "traffic"	13,746		14,638		(6)%	24,332		27,087		(10)%
ASMs (000,000) "capacity"	15,611		16,980		(8)%	29,394		32,487		(10)%
Load Factor	88.1%		86.2%		1.9 pts	82.8%		83.4%		(0.6) pts
Yield	17.59¢		14.43¢		22%	16.15¢		14.13¢		14%
RASM	17.03¢		13.48¢		26%	14.76¢		12.82¢		15%
CASMex	9.92¢		8.33¢		19%	10.24¢		8.68¢		18%
FTEs	22,603		21,921		3%	22,092		21,876		1%

COMPARISON OF THREE MONTHS ENDED JUNE 30, ~~2021~~2022 TO THREE MONTHS ENDED JUNE 30, ~~2020~~2021

Our consolidated net income for the three months ended June 30, ~~2021~~2022 was ~~$397~~$139 million, or ~~$3.13~~$1.09 per share, compared to a consolidated net ~~loss~~income of ~~$214~~$397 million, or ~~$1.74~~$3.13 per share, for the three months ended June 30, ~~2020.~~2021.

Excluding the impact of ~~the Payroll Support Program grant wage offset,~~ special items and mark-to-market fuel hedge adjustments, our adjusted net ~~loss~~income for the second quarter of ~~2021~~2022 was ~~$38~~$280 million, or ~~$0.30~~$2.19 per share, compared to an adjusted net loss of ~~$439~~$38 million, or ~~$3.57~~$0.30 per share, in the second quarter of ~~2020.~~2021. The following ~~tables reconcile~~table reconciles our adjusted net ~~loss~~income per share (EPS) to amounts as reported in accordance with GAAP:


		Three Months Ended June 30,									Three Months Ended June 30,
		2021				2020					2022				2021
(in millions, except per share amounts)	(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS		(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income (loss) per share		$	397	$	3.13	$	(214)	$	(1.74)
GAAP net income per share										GAAP net income per share	$	139	$	1.09	$	397	$	3.13
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(503)		(3.97)		(362)		(2.94)		Payroll Support Program grant wage offset	—		—		(503)		(3.97)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(46)		(0.36)		(6)		(0.05)		Mark-to-market fuel hedge adjustments	40		0.31		(46)		(0.36)
Special items - impairment charges and other		(4)		(0.03)		69		0.56
Special items - fleet transition and related charges										Special items - fleet transition and related charges	146		1.14		(4)		(0.03)
Special items - restructuring charges	Special items - restructuring charges	(23)		(0.18)		—		—		Special items - restructuring charges	—		—		(23)		(0.18)
Special items - merger-related costs		—		—		1		0.01

Income tax effect of reconciling items above	Income tax effect of reconciling items above	141		1.11		73		0.59		Income tax effect of reconciling items above	(45)		(0.35)		141		1.11
Non-GAAP adjusted net loss per share		$	(38)	$	(0.30)	$	(439)	$	(3.57)
Non-GAAP adjusted net income (loss) per share										Non-GAAP adjusted net income (loss) per share	$	280	$	2.19	$	(38)	$	(0.30)

CASM excluding fuel and special items reconciliation is summarized below:


		Three Months Ended June 30,							Three Months Ended June 30,
(in cents)	(in cents)	2021		2020		% Change		(in cents)	2022		2021		% Change
Consolidated:	Consolidated:							Consolidated:
CASM	CASM	7.29	¢	16.46	¢	(56)	%	CASM	15.84	¢	7.29	¢	117	%
Less the following components:	Less the following components:							Less the following components:
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(3.75)		(8.40)		(55)	%	Payroll Support Program grant wage offset	—		(3.75)		NM
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	2.04		1.37		49	%	Aircraft fuel, including hedging gains and losses	4.98		2.04		144	%
Special items - impairment charges and other		(0.03)		1.60		(102)	%
Special items - fleet transition and related charges								Special items - fleet transition and related charges	0.94		(0.03)		NM
Special items - restructuring charges	Special items - restructuring charges	(0.17)		—		NM		Special items - restructuring charges	—		(0.17)		NM
Special items - merger-related costs		—		0.02		(100)	%

CASM excluding fuel and special items	CASM excluding fuel and special items	9.20	¢	21.87	¢	(58)	%	CASM excluding fuel and special items	9.92	¢	9.20	¢	8	%

Mainline:	Mainline:							Mainline:
CASM	CASM	6.24	¢	15.79	¢	(60)	%	CASM	15.06	¢	6.24	¢	141	%
Less the following components:	Less the following components:							Less the following components:
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(3.79)		(9.69)		(61)	%	Payroll Support Program grant wage offset	—		(3.79)		NM
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	1.78		1.16		53	%	Aircraft fuel, including hedging gains and losses	5.06		1.78		184	%

Special items - impairment charges and other		(0.03)		2.11		(101)	%
Special items - fleet transition and related charges								Special items - fleet transition and related charges	1.02		(0.03)		NM
Special items - restructuring charges	Special items - restructuring charges	(0.20)		—		NM		Special items - restructuring charges	—		(0.20)		NM
Special items - merger-related costs		—		0.02		(100)	%

CASM excluding fuel and special items	CASM excluding fuel and special items	8.48	¢	22.19	¢	(62)	%	CASM excluding fuel and special items	8.98	¢	8.48	¢	6	%

OPERATING ~~REVENUES~~REVENUE

Total operating ~~revenues~~revenue increased $1.1 billion, or 74%, during the second quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. The changes are summarized in the following table:


		Three Months Ended June 30,							Three Months Ended June 30,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Passenger revenue	Passenger revenue	$	1,352	$	309	338	%	Passenger revenue	$	2,418	$	1,352	79	%
Mileage Plan other revenue	Mileage Plan other revenue	118		73		62	%	Mileage Plan other revenue	175		118		48	%
Cargo and other	Cargo and other	57		39		46	%	Cargo and other	65		57		14	%
Total operating revenues		$	1,527	$	421	263	%
Total operating revenue								Total operating revenue	$	2,658	$	1,527	74	%

Passenger ~~Revenue~~revenue

On a consolidated basis, Passenger revenue for the second quarter of ~~2021~~2022 increased by ~~$1.0~~$1.1 billion, ~~primarily~~or 79%, driven by a ~~significant~~33% increase in passenger ~~traffic. In~~traffic and a 34% improvement in ticket yields. Record setting demand for air travel and constrained capacity industry wide enabled record load factors in each month of the second quarter of ~~2020, we experienced a near complete loss~~2022. Higher revenue on improved Mileage Plan award redemptions and from our alliance partners following the relaxing of ~~demand driven by the COVID-19 pandemic. As recovery has taken hold, including wide availability of the vaccine and removal of~~international travel restrictions ~~throughout the markets we serve, demand for air travel has increased exponentially driven primarily by leisure travelers.~~also contributed meaningfully to revenue growth as compared to 2021.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue for the second quarter of 2022 increased by ~~$45~~$57 million, or ~~62%, as compared to the same prior-year period,~~48%. The change is largely due to an increase in commissions from our bank card partners driven by increased consumer spending and improved economics from our new co-branded credit card ~~acquisitions. Performance of~~agreement. Second quarter Mileage Plan other ~~revenues outpaced all other~~ revenue ~~sources, and resulted in~~includes a one-time $20 million adjustment recorded as a result of finalizing accounting conclusions for the ~~best performance of the program ever in the second quarter of 2021.~~new agreement.

Cargo and other

On a consolidated basis, Cargo and other revenue for the second quarter of ~~2021~~2022 increased by ~~$18~~$8 million, or ~~46%, as compared to~~14%. Other ancillary revenue was the ~~same prior-year period. The~~primary driver of the year-over-year increase, ~~is primarily~~consistent with the return in demand for travel. Incremental freight revenue also contributed, due to ~~the return~~greater use of ~~all three freighters back to full~~belly capacity which grew on an increase in ~~the second quarter of 2021, coupled with increased belly cargo activity as we increase~~ scheduled departures.

OPERATING EXPENSES

Total operating expenses increased ~~$269 million,~~$1.5 billion, or ~~38%~~153%, compared to the second quarter of ~~2020.~~2021. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:


		Three Months Ended June 30,							Three Months Ended June 30,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Fuel expense	Fuel expense	$	274	$	59	364	%	Fuel expense	$	776	$	274	183	%
Non-fuel operating expenses, excluding special items	Non-fuel operating expenses, excluding special items	1,234		942		31	%	Non-fuel operating expenses, excluding special items	1,549		1,234		26	%
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(503)		(362)		39	%	Payroll Support Program grant wage offset	—		(503)		NM
Special items - impairment charges and other		(4)		69		(106)	%
Special items - fleet transition and related charges								Special items - fleet transition and related charges	146		(4)		NM
Special items - restructuring charges	Special items - restructuring charges	(23)		—		NM		Special items - restructuring charges	—		(23)		NM
Special items - merger-related costs		—		1		(100)	%

Total operating expenses	Total operating expenses	$	978	$	709	38	%	Total operating expenses	$	2,471	$	978	153	%

Fuel ~~Expense~~expense

Aircraft fuel expense includes raw fuel expense (as defined below) plus the effect of mark-to-market adjustments to our fuel hedge portfolio as the value of that portfolio increases and decreases. Our aircraft fuel expense can be volatile because it includes these gains or losses in the value of the underlying instrument as crude oil prices and refining margins increase or decrease. Raw fuel expense is defined as the price that we generally pay at the airport, or the “into-plane” price, including taxes and fees. Raw fuel prices are impacted by world oil prices and refining costs, which can vary by region in the U.S. Raw fuel expense approximates cash paid to suppliers and does not reflect the effect of our fuel hedges.

Aircraft fuel expense increased ~~$215~~$502 million, or 183%, compared to the second quarter of ~~2020.~~2021. The elements of the change are illustrated in the following table:


		Three Months Ended June 30,									Three Months Ended June 30,
		2021				2020					2022				2021
(in millions, except for per gallon amounts)	(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal		(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	Raw or "into-plane" fuel cost	$	330	$	1.96	$	60	$	1.11	Raw or "into-plane" fuel cost	$	824	$	4.20	$	330	$	1.96
(Gain)/loss on settled hedges	(Gain)/loss on settled hedges	(10)		(0.06)		5		0.09		(Gain)/loss on settled hedges	(88)		(0.44)		(10)		(0.06)
Consolidated economic fuel expense	Consolidated economic fuel expense	320		1.90		$	65	$	1.20	Consolidated economic fuel expense	$	736	$	3.76	$	320	$	1.90
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(46)		(0.27)		(6)		(0.11)		Mark-to-market fuel hedge adjustments	40		0.20		(46)		(0.27)
GAAP fuel expense	GAAP fuel expense	$	274	$	1.63	$	59	$	1.09	GAAP fuel expense	$	776	$	3.96	$	274	$	1.63
Fuel gallons	Fuel gallons	168				54				Fuel gallons			196				168

Raw fuel expense increased 150% in the second quarter of 2022 compared to the second quarter of 2021, due to significantly higher per gallon ~~for the three months ended June 30, 2021~~costs and increased fuel consumption. Raw fuel expense per gallon increased by approximately ~~77%~~114% due to higher West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil and refining margins associated with the conversion of crude oil to jet fuel. ~~The increase in raw fuel price per gallon during the second quarter of 2021 was primarily driven by a 24% increase in crude~~Crude oil ~~prices. This is coupled~~prices have risen 62% while refining margins have risen exponentially compared to 2021. Fuel gallons consumed increased 17%, consistent with ~~an increase in consumption of 114 million gallons, on an increase in scheduled departures.~~rising capacity.

We also evaluate economic fuel expense, which we define as raw fuel expense adjusted for the cash we receive from ~~or pay to,~~ hedge counterparties for hedges that settle during the period and for the premium expense that we paid for those contracts. A key difference between aircraft fuel expense and economic fuel expense is the timing of gain or loss recognition on our hedge portfolio. ~~When we refer to~~ ~~economic~~Economic fuel expense~~, we include~~ includes gains and losses only when they are realized for those contracts that were settled during the period based on their original contract terms. We believe this is the best measure of the effect that fuel prices are currently having on our business as it most closely approximates the net cash outflow associated with purchasing fuel for our operations. Accordingly, many industry analysts evaluate our results using this measure, and it is the basis for most internal management reporting and incentive pay plans.

Gains recognized for hedges that settled during the second quarter were ~~$10~~$88 million in ~~2021,~~2022, compared to ~~losses~~gains of $5$10 million in the same period in ~~2020.~~2021. These amounts represent cash received from hedges at settlement, offset by cash paid in prior periods for premium expense.

Non-fuel ~~Expenses~~expenses

The table below provides the reconciliation of the operating expense line items, excluding fuel, the Payroll Support Program grant wage offset and other special items. Significant operating expense variances from ~~2020~~2021 are more fully described below.


		Three Months Ended June 30,							Three Months Ended June 30,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Wages and benefits	Wages and benefits	$	510	$	472	8	%	Wages and benefits	$	639	$	510	25	%
Variable incentive pay	Variable incentive pay	34		16		113	%	Variable incentive pay	56		34		65	%
Aircraft maintenance	Aircraft maintenance	102		45		127	%	Aircraft maintenance	104		102		2	%
Aircraft rent	Aircraft rent	62		74		(16)	%	Aircraft rent	73		62		18	%
Landing fees and other rentals	Landing fees and other rentals	144		83		73	%	Landing fees and other rentals	136		144		(6)	%
Contracted services	Contracted services	54		30		80	%	Contracted services	82		54		52	%
Selling expenses	Selling expenses	41		4		925	%	Selling expenses	78		41		90	%
Depreciation and amortization	Depreciation and amortization	98		107		(8)	%	Depreciation and amortization	104		98		6	%
Food and beverage service	Food and beverage service	35		7		400	%	Food and beverage service	50		35		43	%
Third-party regional carrier expense	Third-party regional carrier expense	37		26		42	%	Third-party regional carrier expense	50		37		35	%
Other	Other	117		78		50	%	Other	177		117		51	%
Total non-fuel operating expenses, excluding special items	Total non-fuel operating expenses, excluding special items	$	1,234	$	942	31	%	Total non-fuel operating expenses, excluding special items	$	1,549	$	1,234	26	%

Wages and ~~Benefits~~benefits

Wages and benefits increased ~~during~~by $129 million, or 25%, in the second quarter of ~~2021 by $38 million, or 8%, compared to 2020.~~2022. The primary components of Wages and benefits are shown in the following table:


		Three Months Ended June 30,							Three Months Ended June 30,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Wages	Wages	$	386	$	350	10	%	Wages	$	486	$	386	26	%
Pension - Defined benefit plans service cost	Pension - Defined benefit plans service cost	13		13		—	%	Pension - Defined benefit plans service cost	12		13		(8)	%
Defined contribution plans	Defined contribution plans	26		30		(13)	%	Defined contribution plans	39		26		50	%
Medical and other benefits	Medical and other benefits	59		54		9	%	Medical and other benefits	66		59		12	%
Payroll taxes	Payroll taxes	26		25		4	%	Payroll taxes	36		26		38	%
Total wages and benefits	Total wages and benefits	$	510	$	472	8	%	Total wages and benefits	$	639	$	510	25	%

Wages increased ~~$36~~$100 million, or ~~10%~~26%, ~~on a 20% increase~~primarily driven by 19% growth in ~~FTEs.~~FTEs as Alaska and Horizon hire to support the ramp up in operations, as well as higher wage rates. Increased ~~wages as compared to~~expense for defined contribution plans, payroll taxes, and medical and other benefits are consistent with the ~~prior period are primarily the result of leaves of absence taken and reduction~~change in ~~executive pay and hours for management employees in 2020 which were not repeated in 2021.~~

Defined contribution plan expense decreased 13% as compared to 2020 as a result of a one-time adjustment recorded in the second quarter of 2021 for employer contributions to those participating in incentive leave programs.wages.

Variable ~~Incentive Pay~~incentive pay

Variable incentive pay expense increased ~~$18~~by $22 million, ~~during~~or 65%, in the second quarter of ~~2021 compared~~2022. The increase is primarily due to the ~~same period in 2020 on increased~~ expectation ~~of achievement of key financial and operational metrics.~~that higher payouts will be achieved under the 2022 Performance Based Pay Plan.

Aircraft ~~Maintenance~~

Aircraft maintenance expense increased by $57 million during the second quarter of 2021 compared to the same period in 2020. This is primarily due to a significant increase in utilization of aircraft as we return to capacity, resulting in increased engine events, heavy checks and power-by-the-hour expense.

~~Aircraft Rent~~rent

Aircraft rent expense ~~decreased~~increased by ~~$12~~$11 million, or ~~16%~~18%, ~~during~~in the second quarter of ~~2021 compared~~2022. Increased expense is due to the ~~same period in 2020 primarily the result~~delivery of ~~the full impairment taken on certain~~eight leased ~~Airbus~~Boeing 737-9 aircraft ~~in 2020.~~and ten leased E175 aircraft operated by SkyWest since June 30, 2021.

Landing fees and other rentals

Landing fees and other rentals ~~increased~~decreased by ~~$61~~$8 million, or ~~73%~~6%, ~~during~~in the second quarter of ~~2021~~2022. The decrease compared to the same period in ~~2020 primarily~~2021 is due to ~~a significant increase in departures. Increased departure-related costs were~~favorable resolution for certain pandemic period airport accruals, coupled ~~by rate increases at many of our hub airports, including~~with decreased airport rates as compared to the ~~renegotiated lease at our largest airport hub Seattle-Tacoma International Airport.~~prior year.

Contracted ~~Services~~services

Contracted services increased by ~~$24~~$28 million, or ~~80%~~52%, ~~during~~in the second quarter of ~~2021 compared to the same period in 2020~~2022, driven primarily by increased departures and passengers, ~~as compared to the prior-year period as a result of the COVID-19 pandemic.~~coupled with higher rates charged by vendor partners.

Selling ~~Expense~~expense

Selling expense increased by $37 million, ~~during~~or 90%, in the second quarter of ~~2021 compared to the same period in 2020,~~2022, driven primarily ~~driven~~ by ~~a significant~~an increase in distribution costs and credit card commissions incurred with the overall revenue recovery.

Food and beverage service

Food and beverage service increased by $15 million, or 43%, in the second quarter of 2022, consistent with a 26% increase in revenue passengers. Additional on-board offerings coupled with increased charges for transportation also contributed to the overall increase.

Third-party regional carrier expense

Third-party regional carrier expense, which represents expenses associated with SkyWest under our CPA, increased by $14 million, or 35%, in the second quarter of ~~overall travel.~~2022. The increase in expense is due to incremental departures flown by SkyWest with ten additional aircraft in operating service as compared to the prior-year period.

~~Food and Beverage Service~~

Food and beverage service increased by $28 million during the second quarter of 2021 compared to the same period in 2020. This increase is consistent with the overall increase in revenue passengers as compared to the prior-year period, as well as the return of many of our on-board products in the second quarter of 2021.

~~Third-party Regional Carrier Expense~~

Third-party regional carrier expense, which represents payments made to SkyWest under our CPA, increased by $11 million, or 42%, during the second quarter of 2021 compared to the same period in 2020. The increase in expense is primarily due to increases in departures flown by SkyWest as compared to the prior-year period. Increased expense was partially offset by a pass through of CARES Act PSP funding of $5 million received in the second quarter to offset SkyWest pilot and flight attendant wages and benefits.

Other expense

Other expense increased ~~$39~~$60 million, or ~~50%~~51%, ~~during~~in the second quarter of ~~2021 compared to~~2022. Training events, including travel costs, were a significant driver of the ~~same period in 2020. Increased expense is primarily driven by incremental~~increased cost. Incremental crew hotel stays and per diem, consistent with the overall increase in departures and capacity, ~~as well as additional expense for professional services.~~also contributed to the year-over-year increase.

Special ~~Items~~items - ~~Impairment~~fleet transition and ~~other~~related charges

We recorded ~~a benefit~~non-recurring expenses associated with ~~impairment~~fleet transition and ~~other~~related charges of $4$146 million in the second quarter of ~~2021, consisting of updated estimates for costs associated with leased aircraft that have been retired and removed from the operating fleet but not yet returned~~2022. Refer to Note 2 to the ~~lessor.~~consolidated financial statements for additional details.

~~Special Items - Restructuring charges~~

We recorded a benefit for workforce restructuring of $23 million in the second quarter of 2021 primarily as a result of issuing recall notices to pilots on incentive lines for periods earlier than were previously anticipated.

ADDITIONAL SEGMENT INFORMATION

Refer to Note 9 ofto the ~~condensed~~ consolidated financial statements for a detailed description of each segment. Below is a summary of each segment's profitability.

Mainline

Mainline ~~recorded~~operations reported an adjusted pretax profit of $375 million in the second quarter of 2022, compared to an adjusted pretax loss of $24 million in the second quarter of ~~2021, compared to a pretax loss of $471 million in the second quarter of 2020.~~2021. The ~~$447~~$399 million improvement was primarily driven by ~~an $847~~a $956 million increase in Passenger ~~revenues as a result of increased demand for air travel,~~revenue, offset by a ~~$238~~$364 million increase in economic fuel cost and a $278 million increase in non-fuel operating ~~costs and a $208 million increase in economic fuel cost.~~costs.

~~The increase in~~As compared to the prior year, higher Mainline ~~passenger~~ revenue ~~for the second quarter of 2021 was~~is primarily ~~driven by~~attributable to a ~~significant~~39% increase in traffic and ~~capacity due to increased~~a 36% increase in yield, driven by a historically strong demand ~~for air travel.~~

environment. Non-fuel operating expenses increased, ~~significantly,~~ driven by ~~increased~~higher variable costs, largely consistent with the overall ~~increase~~growth in capacity and departures. Higher ~~raw~~ fuel prices, combined with ~~a significant increase in~~more gallons consumed, drove the increase in Mainline fuel expense.

Regional

Regional operations ~~generated~~reported an adjusted pretax loss of $2 million in the second quarter of 2022, compared to an adjusted pretax loss of $56 million in the second quarter of ~~2021, compared to a pretax loss of $129 million in the second quarter of 2020. The improved pretax loss was~~2021. Improved results were attributable to a ~~$195~~$110 million increase in operating ~~revenues,~~revenue, partially offset by a ~~$76 million increase in non-fuel operating expenses and a $46~~$53 million increase in fuel costs.

Regional passenger revenue increased significantly compared to the second quarter of ~~2020,~~2021, primarily driven by ~~increased traffic~~an improved load factor and ~~capacity driven by~~a 48% improvement in yield. Higher fuel prices contributed to the ~~resurgence in demand for air travel.~~

~~The~~ increase in non-fuel operating expenses is primarily due to increased variable costs and higher CPA rates on an increase in capacity, offset by the pass through of CARES Act PSP funds recorded in the second quarter of 2021.Regional fuel expense.

Horizon

Horizon ~~achieved~~reported an adjusted pretax loss of $2 million in the second quarter of 2022, compared to an adjusted pretax profit of $15 million in the second quarter of ~~2021 compared~~2021. The shift to ~~$8 million in the second quarter of 2020. Increased profit~~adjusted pretax loss is ~~primarily the result of increased capacity flown, coupled~~driven by lower CPA revenue on decreased departures, combined with ~~substantial progress in cost reduction efforts.~~incremental maintenance expense on E175 aircraft and higher wage and benefit costs on incremental FTEs.

COMPARISON OF SIX MONTHS ENDED JUNE 30, ~~2021~~2022 TO SIX MONTHS ENDED JUNE 30, ~~2020~~2021

Our consolidated net loss for the six months ended June 30, 2022 was $4 million, or $0.03 per share, compared to consolidated net income of $266 million, or $2.10 per share, for the six months ended June 30, 2021.

Our adjusted net income for the six months ended June 30, ~~2021~~2022 was ~~$266~~$113 million, or ~~$2.10~~$0.89 per ~~diluted share, compared to a net loss of $446 million, or $3.62 per diluted share, for the six months ended June 30, 2020.~~

~~Our adjusted net loss for the six months ended June 30, 2021 was $474 million, or $3.75 per diluted~~ share, compared to an adjusted net loss of ~~$541~~$474 million, or ~~$4.40~~$3.75 per ~~diluted~~ share, in the six months ended June 30, ~~2020.~~2021. The following ~~tables reconcile~~table reconciles our adjusted net ~~loss~~income and adjusted ~~diluted~~ EPS to amounts as reported in accordance with GAAP:


		Six Months Ended June 30,									Six Months Ended June 30,
		2021				2020					2022				2021
(in millions, except per share amounts)	(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS		(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
Reported GAAP net income (loss) and diluted EPS		$	266	$	2.10	$	(446)	$	(3.62)
GAAP net income (loss) per share										GAAP net income (loss) per share	$	(4)	$	(0.03)	$	266	$	2.10
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(914)		(7.23)		(362)		(2.94)		Payroll Support Program grant wage offset	—		—		(914)		(7.23)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(68)		(0.54)		3		0.02		Mark-to-market fuel hedge adjustments	(67)		(0.53)		(68)		(0.54)
Special items - merger-related costs		—		—		4		0.03

Special items - impairment charges and other	Special items - impairment charges and other	14		0.11		229		1.86		Special items - impairment charges and other	221		1.75		14		0.11
Special items - restructuring charges	Special items - restructuring charges	(12)		(0.09)		—		—		Special items - restructuring charges	—		—		(12)		(0.09)
Income tax effect of reconciling items above	Income tax effect of reconciling items above	240		1.90		31		0.25		Income tax effect of reconciling items above	(37)		(0.30)		240		1.90
Non-GAAP adjusted net loss per share		$	(474)	$	(3.75)	$	(541)	$	(4.40)
Non-GAAP adjusted net income (loss) per share										Non-GAAP adjusted net income (loss) per share	$	113	$	0.89	$	(474)	$	(3.75)

CASM excluding fuel and special items reconciliation is summarized below:


	Six Months Ended June 30,
(in cents)	2022		2021		% Change
Consolidated:
CASM	14.81	¢	8.13	¢	82	%
Less the following components:
Payroll Support Program grant wage offset	—		(3.84)		NM
Aircraft fuel, including hedging gains and losses	3.82		2.00		91	%
Special items - fleet transition and related charges	0.75		0.07		NM
Special items - restructuring charges	—		(0.05)		NM

CASM excluding fuel and special items	10.24	¢	9.95	¢	3	%

Mainline:
CASM	13.69	¢	6.72	¢	104	%
Less the following components:
Payroll Support Program grant wage offset	—		(4.21)		NM
Aircraft fuel, including hedging gains and losses	3.84		1.75		119	%
Special items - fleet transition and related charges	0.56		0.07		NM
Special items - restructuring charges and other	—		(0.06)		NM

CASM excluding fuel and special items	9.29	¢	9.17	¢	1	%

~~Our operating costs per ASM are summarized below:~~
Six Months Ended June 30,
(in cents) 2021 2020 % Change
Consolidated:
CASM 8.13 ¢ 13.59 ¢ (40) %
Less the following components:
Payroll Support Program grant wage offset (3.84) (1.85) 108 %
Aircraft fuel, including hedging gains and losses 2.00 2.26 (12) %
Special items - impairment charges and other 0.07 1.17 (94) %
Special items - restructuring charges (0.05) — NM
Special items - merger-related costs — 0.01 (100) %
CASM excluding fuel and special items 9.95 ¢ 12.00 ¢ (17) %
Mainline:
CASM 6.72 ¢ 12.39 ¢ (46) %
Less the following components:
Payroll Support Program grant wage offset (4.21) (1.91) 120 %
Aircraft fuel, including hedging gains and losses 1.75 2.12 (17) %
Special items - impairment charges and other 0.07 0.99 (93) %
Special items - restructuring charges and other (0.06) — NM
Special items - merger-related costs — 0.02 (100) %
CASM excluding fuel and special items 9.17 ¢ 11.17 ¢ (18) %

OPERATING ~~REVENUES~~REVENUE

Total operating ~~revenues~~revenue increased ~~$267 million,~~$2.0 billion, or ~~13%~~87%, during the first six months of ~~2021~~2022 compared to the same period in ~~2020.~~2021. The changes are summarized in the following table:


		Six Months Ended June 30,							Six Months Ended June 30,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Passenger revenue	Passenger revenue	$	2,011	$	1,790	12	%	Passenger revenue	$	3,929	$	2,011	95	%
Mileage Plan other revenue	Mileage Plan other revenue	212		182		16	%	Mileage Plan other revenue	287		212		35	%
Cargo and other	Cargo and other	101		85		19	%	Cargo and other	123		101		22	%
Total operating revenues		$	2,324	$	2,057	13	%
Total operating revenue								Total operating revenue	$	4,339	$	2,324	87	%

Passenger ~~Revenue~~revenue

On a consolidated basis, Passenger revenue for the first six months of ~~2021~~2022 increased by ~~$221 million,~~$1.9 billion, or ~~12%~~95%, on a ~~28%~~55% increase in passenger traffic ~~driven primarily by rebounding~~and a 26% improvement in ticket yields. Although our airlines experienced operational disruptions in the first half of 2022, demand for both leisure and business travel experienced in the second quarter of 2021. As travel restrictions were removed, including the full removal of restrictions in the state of California in June of 2021, passenger counts increased dramatically as comparedcontinues to ~~the prior year. These~~drive meaningful improvements ~~were offset by a decrease of 12% in yield, stemming from promotional activities undertaken~~ to ~~stimulate demand and increase bookings during what is typically a low booking period.~~revenue results.

We expect ~~to see continued improvement to~~ Passenger revenue to continue to grow compared to 2021 results as we ~~progress through 2021, driven by continued growth~~are flying more capacity, and also due to the relative strength in the demand environment, coupled with incremental revenue from Mileage Plan award redemptions and ~~capacity,~~alliance partners as ~~well as improvements to business~~global travel ~~as employees return to work.~~restrictions have eased.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue increased ~~$30~~$75 million, or ~~16%~~35%, in the first six months of ~~2021 compared to the first six months of 2020,~~2022. The change is largely due ~~largely~~ to an increase in ~~commission received~~commissions from our ~~affinity~~bank card ~~partner stemming~~partners driven by increased consumer spending and improved economics from ~~growing consumer spend and incremental~~our new co-branded credit card ~~acquisitions.~~agreement.

We expect continued strength in Mileage Plan other revenue for the remainder of 2022 relative to the prior year, driven by higher commissions from the new co-branded credit card agreement.

Cargo and other

On a consolidated basis, Cargo and other revenue increased ~~$16~~$22 million, or ~~19%~~22%, in the first six months of ~~2021 compared to~~2022. Other ancillary revenue was the ~~first six months~~primary driver of ~~2020. The~~the year-over-year increase, ~~is primarily~~consistent with the return in demand for travel. Incremental freight revenue also contributed, due to ~~the return~~greater use of ~~all three freighters back to full~~belly capacity which grew on an increase in ~~the second quarter of 2021, coupled with increased belly cargo activity as we increase~~ scheduled departures.

We expect ~~that~~Cargo and other revenue continue to increase compared to 2021 driven by greater ancillary revenue and growth in our cargo ~~and other revenues will be positively impacted as compared to 2020 due to the elimination of freighter limitations.~~business.

OPERATING EXPENSES

Total operating expenses ~~decreased $730 million,~~increased $2.4 billion, or ~~27%~~125%, compared to the first six months of ~~2020.~~2021. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:


		Six Months Ended June 30,							Six Months Ended June 30,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Fuel expense	Fuel expense	$	477	$	443	8	%	Fuel expense	$	1,123	$	477	135	%
Non-fuel operating expenses, excluding special items	Non-fuel operating expenses, excluding special items	2,371		2,352		1	%	Non-fuel operating expenses, excluding special items	3,010		2,371		27	%
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(914)		(362)		152	%	Payroll Support Program grant wage offset	—		(914)		NM
Special items - impairment charges and other	Special items - impairment charges and other	14		229		(94)	%	Special items - impairment charges and other	221		14		NM
Special items - restructuring charges	Special items - restructuring charges	(12)		—		NM		Special items - restructuring charges	—		(12)		NM
Special items - merger-related costs		—		4		(100)	%

Total operating expenses	Total operating expenses	$	1,936	$	2,666	(27)	%	Total operating expenses	$	4,354	$	1,936	125	%

Fuel ~~Expense~~expense

Aircraft fuel expense increased ~~$34~~$646 million, or 8%135%, compared to the six months ended June 30, ~~2020.~~2021. The elements of the change are illustrated in the table:


		Six Months Ended June 30,									Six Months Ended June 30,
		2021				2020					2022				2021
(in millions, except for per gallon amounts)	(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal		(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	Raw or "into-plane" fuel cost	$	552	$	1.87	$	430	$	1.73	Raw or "into-plane" fuel cost	$	1,328	$	3.61	$	552	$	1.87
(Gain)/loss on settled hedges	(Gain)/loss on settled hedges	(7)		(0.02)		10		0.04		(Gain)/loss on settled hedges	(138)		(0.38)		(7)		(0.02)
Consolidated economic fuel expense	Consolidated economic fuel expense	545		1.85		$	440	$	1.77	Consolidated economic fuel expense	1,190		3.23		$	545	$	1.85
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(68)		(0.23)		3		0.01		Mark-to-market fuel hedge adjustments	(67)		(0.18)		(68)		(0.23)
GAAP fuel expense	GAAP fuel expense	$	477	$	1.62	$	443	$	1.78	GAAP fuel expense	$	1,123	$	3.05	$	477	$	1.62
Fuel gallons	Fuel gallons	294				248				Fuel gallons			368				294

~~The raw~~Raw fuel ~~price~~expense increased 141% in the first six months of 2022 compared to the first six months of 2021, due to significantly higher per gallon costs and increased fuel consumption. Raw fuel expense per gallon increased 8%by approximately 93% due to higher West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil ~~as well as~~and refining margins associated with the conversion of crude oil to jet fuel. ~~The increase in~~ Crude oil prices have risen 48% while refining margins have more than doubled. Fuel gallons consumed increased 25%, consistent with rising capacity.

We also evaluate economic fuel expense, which we define as raw fuel ~~price per gallon~~expense adjusted for the cash we receive from hedge counterparties for hedges that settle during the ~~first six months~~period and for the premium expense that we paid for those contracts. A key difference between aircraft fuel expense and economic fuel expense is the timing of ~~2021 was driven by a 10% increase in crude oil~~gain or loss recognition on our hedge portfolio. Economic fuel expense includes gains and losses only when they are realized for those contracts that were settled during the period based on their original contract terms. We believe this is the best measure of the effect that fuel prices ~~offset by a 65% decrease in refining margins.~~are currently having on our business as it most closely approximates the net cash outflow associated with purchasing fuel for our operations. Accordingly, many industry analysts evaluate our results using this measure, and it is the basis for most internal management reporting and incentive pay plans.

Gains recognized for hedges that settled in the first six months of ~~2021~~2022 were $7$138 million, compared to ~~losses~~gains of ~~$10~~$7 million in the same period in ~~2020.~~2021. These amounts represent cash received from settled hedges, offset by cash paid in prior periods for premium expense.

We expect continued pressure in aircraft fuel expense as we progress through 2022, driven by both increased raw fuel and refining margins on increased capacity. We expect our economic fuel cost per gallon in the third quarter to range between ~~$1.95~~$3.79 and ~~$2.00~~$3.89 per ~~gallon based~~gallon. Based on ~~current~~expected raw fuel prices, we will continue to recognize benefits from our fuel hedge portfolio during 2022. We expect the magnitude of the hedge benefit to be lesser in the second half of the year as the strike price of the portfolio approaches projected market ~~West Coast jet fuel prices.~~cost per barrel.

Non-fuel ~~Expense~~expenses


	Six Months Ended June 30,
(in millions)	2022		2021		% Change
Wages and benefits	$	1,245	$	1,003	24	%
Variable incentive pay	92		67		37	%
Aircraft maintenance	239		183		31	%
Aircraft rent	146		124		18	%
Landing fees and other rentals	274		273		—	%
Contracted services	160		105		52	%
Selling expenses	136		74		84	%
Depreciation and amortization	206		195		6	%
Food and beverage service	91		58		57	%
Third-party regional carrier expense	92		67		37	%
Other	329		222		48	%
Total non-fuel operating expenses, excluding special items	$	3,010	$	2,371	27	%

For the remainder of the year, we generally anticipate recognizing incremental costs as compared to 2021 as we continue to increase our capacity and ~~Non- special items~~

Six Months Ended June 30,
(in millions) 2021 2020 % Change
Wages and benefits $ 1,003 $ 1,084 (7) %
Variable incentive pay 67 23 191 %
Aircraft maintenance 183 160 14 %
Aircraft rent 124 155 (20) %
Landing fees and other rentals 273 214 28 %
Contracted services 105 102 3 %
Selling expenses 74 59 25 %
Depreciation and amortization 195 215 (9) %
Food and beverage service 58 56 4 %
Third-party regional carrier expense 67 63 6 %
Other 222 221 — %
Total non-fuel operating expenses, excluding special items $ 2,371 $ 2,352 1 %
scheduled departures, and hire additional employees at higher wage rates to staff our operation.

Wages and ~~Benefits~~benefits

Wages and benefits ~~decreased during~~increased by $242 million, or 24%, in the first six months of ~~2021 by $81 million, or 7%.~~2022. The primary components of wages and benefits are shown in the following table:


		Six Months Ended June 30,							Six Months Ended June 30,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Wages	Wages	$	743	$	803	(7)	%	Wages	$	953	$	743	28	%
Pension—Defined benefit plans service cost		26		26		—	%
Pension - Defined benefit plans service cost								Pension - Defined benefit plans service cost	23		26		(12)	%
Defined contribution plans	Defined contribution plans	58		68		(15)	%	Defined contribution plans	77		58		33	%
Medical and other benefits	Medical and other benefits	124		130		(5)	%	Medical and other benefits	122		124		(2)	%
Payroll taxes	Payroll taxes	52		57		(9)	%	Payroll taxes	70		52		35	%
Total wages and benefits	Total wages and benefits	$	1,003	$	1,084	(7)	%	Total wages and benefits	$	1,245	$	1,003	24	%

Wages ~~decreased $60~~increased $210 million, or 7%28%, ~~on a 5% decrease~~ in ~~FTEs. Decreased wages~~the first six months of 2022, primarily driven by 22% growth in FTEs as ~~compared~~Alaska and Horizon hire to support the ~~prior period are primarily the result of voluntary early-outs,~~ramp up in operations, as well as leaves of absence and incentive lines accepted in 2020 which carried into 2021. These reductions were offset by increased wages in the second quarter as we began to rebuild staffing and provide incentives to employees in response to increasing demand. Reductions to defined-contribution planhigher wage rates. Increased expense ~~medical and other benefits,~~for defined contribution plans and payroll taxes are ~~a direct result of~~consistent with the ~~decline~~change in wages.

~~For the full year, we expect wages and benefits will increase compared to 2020 as we increase scheduled flying and return workers from~~Variable incentive leaves or other absences to align with our expectation of increased demand. Additionally, as labor shortages continue to impact many of our markets, we expect to see continued wage pressure as we offer premium and bonus pay ~~to attract and retain employees.~~

~~Variable Incentive Pay~~

Variable incentive pay expense increased ~~$44~~$25 million, or ~~191%~~37%, ~~during~~in the first six months of ~~2021 as compared to the same period in 2020.~~2022. The increase is primarily due to the expectation that ~~incremental key targets~~higher payouts will be achieved under the ~~performance based pay program.~~2022 Performance Based Pay Plan.

Aircraft ~~Maintenance~~maintenance

Aircraft maintenance expense increased by ~~$23~~$56 million, or ~~14%~~31%, ~~during~~in the first six months of ~~2021 compared to~~2022. Higher maintenance expense is the ~~same period in 2020. The increase is primarily due to increased component repairs which were delayed from 2020 as a~~ result of ~~increased flight hours, as well as~~charges recorded for maintenance work to return leased aircraft recorded in the first quarter of 2022 and increased power-by-the-hour ~~combined with increased utilization of~~charges on covered ~~aircraft.~~aircraft, including a new contract for our regional fleet.

~~We expect full year~~Aircraft rent

Aircraft rent expense increased by $22 million, or 18%, in the first six months of 2022. Increased expense is due to the delivery of eight leased Boeing 737-9 aircraft ~~maintenance expense to be higher than 2020 on increased~~and ten leased E175 aircraft ~~utilization.~~operated by SkyWest since June 30, 2021.

Landing fees and other rentals

Landing fees and other rentals ~~increased by $59 million, or 28%, during~~in the first six months of ~~2021~~2022 were flat as compared to the same period in ~~2020, primarily due to a significant~~2021, despite an increase in departures ~~combined~~and passengers. Flat expense is due to favorable resolution for certain pandemic period airport accruals, coupled with a reduction in airport rates as traffic returns fees per landing are reduced from 2021 levels.

Contracted services

Contracted services increased by $55 million, or 52%, in the first six months of 2022, driven primarily by increased departures and passengers in line with increased demand, coupled with increased rates ~~at certain of our airports.~~

~~For the full year we expect landing fees and other rentals to increase as compared to 2020 as we continue to increase capacity and departures on increased rates at many of our hub airports.~~charged by vendor partners.

Selling ~~Expense~~expense

Selling expense increased by ~~$15~~$62 million, or ~~25%~~84%, ~~during~~in the first six months of ~~2021 compared to the same period in 2020,~~2022, primarily driven by ~~a significant~~an increase in distribution costs and credit card ~~commissions. Increased marketing spend and sponsorship costs given~~commissions incurred with the ~~return of professional sports and events also contributed to the year-over-year increase.~~overall revenue recovery.

~~We expect full year selling expense will increase in-line~~Food and beverage service

Food and beverage service increased by $33 million, or 57%, in the first six months of 2022. Incremental food and beverage charges are in line with the 47% increase toin revenue ~~as a result of increased distribution costs on higher bookings,~~passengers as well as ~~increased sponsorship and marketing costs.~~additional offerings of on-board products as compared to the prior-year period.

Third-party ~~Regional Carrier Expense~~regional carrier expense

Third-party regional carrier expense, which represents payments made to SkyWest under our CPA, increased $4$25 million, or 6%37%, ~~during~~in the first six months of ~~2021 compared to the same period in 2020.~~2022. The increase in expense is ~~primarily~~ due to ~~a 26% increase~~incremental departures flown by SkyWest with ten additional aircraft in ~~SkyWest departures~~operating service as compared to the ~~prior year. Increased SkyWest activity was offset by the receipt and recognition of $14 million in pass-through of CARES Act PSP funding for pilot and flight attendant wages and benefits.~~prior-year period.

~~For the full year, we~~We expect third-party regional carrier expense to ~~be higher than 2020 driven by~~grow in 2022 as compared to 2021 as we operate incremental E175 aircraft into the CPA with SkyWest through the year.

Other expense

Other expense increased ~~departures.~~$107 million, or 48%, in the first six months of 2022. Training events, including travel costs, were a significant driver of the increased cost. Incremental crew hotel stays and per diem, consistent with the overall increase in departures and capacity, also contributed to the year-over-year increase.

Special ~~Items~~items - ~~Impairment~~fleet transition and ~~other~~related charges

We recorded ~~impairment~~non-recurring expenses associated with fleet transition and ~~other~~related charges of ~~$14~~$221 million in the first six months of ~~2021, consisting of costs~~2022. We expect to record additional special charges associated with the fleet transition during 2022, primarily related to accelerated aircraft ownership and lease return expenses. At this time, these costs are estimated to be between $200 million and $250 million for the remainder of 2022, and are subject to change as management continues to evaluate its leased aircraft ~~that have been retired and removed from the operating fleet but not yet returned~~returns. Refer to Note 2 to the ~~lessor. We continue to evaluate total estimated costs to return these permanently parked aircraft, and make updates to total expense where necessary.~~

~~Special Items - Restructuring charges~~

~~We recorded a restructuring benefit of $12 million in the first six months of 2021 primarily as a result of issuing recall notices to pilots on incentive lines~~consolidated financial statements for ~~periods earlier than were previously anticipated.~~additional details.

ADDITIONAL SEGMENT INFORMATION

Refer to Note 9 ofto the ~~condensed~~ consolidated financial statements for a detailed description of each segment. Below is a summary of each segment's profitability.

Mainline

Mainline operations reported an adjusted pretax ~~loss was $468~~profit of $201 million in the first six months of ~~2021,~~2022, compared to an adjusted pretax loss of ~~$556~~$468 million in the same period in ~~2020.~~2021. The ~~$88~~$669 million improvement ~~to pretax loss~~ was driven by a ~~$163~~$1.8 billion increase in Mainline operating revenue offset by a $571 million increase in Mainline ~~operating revenues coupled with~~fuel expense and a ~~$28~~$579 million ~~decrease~~increase in Mainline non-fuel operating ~~expense. These improvements were offset by a $69 million increase in Mainline fuel~~ expense.

As compared to the prior year, higher Mainline ~~revenues~~revenue are primarily attributable to a ~~25%~~62% increase in traffic onand a ~~20 point~~28% increase in ~~capacity,~~yield, driven by the significant increase in ~~demand recovering from the COVID-19 pandemic.~~demand. Non-fuel operating expenses increased, ~~from~~driven by higher variable costs, ~~on increased~~largely consistent with the overall growth in capacity ~~as well as rising wages~~ and ~~benefits expense as we expand our workforce to meet growing demand and leisure travel seasonality.~~departures. Higher ~~raw~~ fuel prices, combined with ~~increased consumption~~additional gallons consumed, drove the ~~growth~~increase in Mainline fuel expense.

Regional

Regional operations ~~incurred~~reported an adjusted pretax loss of $57 million in the first six months of 2022, compared to an adjusted pretax loss of $206 million in the first six months of ~~2021, compared to an adjusted pretax loss of $202 million in the first six months of 2020. The increased loss was~~2021. Improved results were attributable to a ~~$72~~$223 million increase in ~~non-fuel~~ operating ~~expenses~~revenue which was the result of higher demand and yields, partially offset by a ~~$36~~$74 million increase in fuel costs ~~offset by a $104 million increase in operating revenues.~~

~~The increase to regional revenues is driven by a 50% increase in traffic as compared to the prior-year period, also resulting in increased variable non-fuel operating expenses.~~on higher fuel prices.

Horizon

Horizon ~~achieved~~reported an adjusted pretax loss of $12 million in the first six months of 2022, compared to an adjusted pretax profit of $26 million in the ~~first six months of 2021, compared to an adjusted pretax profit of $16 million in the~~ same period in ~~2020, primarily due~~2021. The shift to ~~improved operational performance~~adjusted pretax loss is driven by lower CPA revenue on decreased departures, combined with incremental maintenance expense on E175 aircraft and ~~cost management.~~higher wage and benefit costs on incremental FTEs.

LIQUIDITY AND CAPITAL RESOURCES

~~As a result~~Our primary sources of ~~the COVID-19 pandemic, we have taken, and will continue to take action to reduce costs, manage~~ liquidity and preserve the relative strength of our balance sheet. In 2020, we took significant actions to enhance and preserve our liquidity, withstand depressed demand, and prepare for the recovery ahead. In 2021, we have achieved the following, which we believe positions us well for recovery:are:

•~~Generated positive operating~~Existing cash ~~flow~~and marketable securities balance of ~~$1.0~~$3.4 billion, ~~bolstered by improved advance bookings for increased demand for air travel,~~ and ~~the receipt of $1.2 billion in payroll support funding~~cash flows from ~~the U.S. Treasury under extensions of CARES Act programs, $892 million of which is included in operating cash flow;~~operations;

•~~Repaid $681 million in debt, including the termination of the CARES Act loan, and the full repayment of two outstanding lines of credit;~~63 unencumbered aircraft that could be financed, if necessary;

•~~Decreased debt-to-capitalization ratio to 56% at June 30, 2021 from 61% at December 31, 2020;~~Combined bank line-of-credit facilities, with no outstanding borrowings, of $400 million.

•~~Finalized~~During the three months ended June 30, 2022, we took free and clear delivery of seven Boeing 737-9 aircraft. We also made debt payments totaling $69 million, ending the quarter with a ~~previously announced amendment~~debt-to-capitalization ratio of 50%, within our target range of 40% to 50%. During the ~~existing aircraft purchase agreement with Boeing, which significantly reduced our 2021 capital commitments and provides slide rights~~second quarter, we received $260 million in federal income tax refunds as a result of filing amended returns to ~~defer commitments~~utilize carry back losses from ~~2022 to later years, and;~~the 2020 tax year.

•~~Maintained low~~As our business returns to sustained profitability, reducing outstanding debt, normalizing our on-hand liquidity, and maintaining a strong balance sheet remain high priorities. Our capital expenditures ~~which~~for 2022 are expected to be approximately ~~$225 million in 2021, including renegotiated timing of pre-delivery payments~~$1.6 billion, which we plan to fund with cash generated by operating activities and ~~deferral of non-essential capital projects.~~

~~Although we have no plans to access equity markets at this time, we believe our equity would be of high interest to investors.~~

~~As the business continues to recover and returns to profitability, reducing outstanding debt and strengthening our balance sheet is a high priority. Based~~cash on our expectations about the recovery ahead, we expect to generate cash flow from operations of zero to $100 million in the third quarter. This is lower than in the second quarter due to the expectation of no further government support and seasonal booking patterns that result in less cash bookings for future travel.hand.

We believe that our current cash and marketable securities balance, combined with available sources of liquidity, will be sufficient to fund our operations, ~~and~~ meet our debt payment obligations, and to remain in compliance with the financial debt covenants in existing financing arrangements for the foreseeable future.

In our cash and marketable securities portfolio, we invest only in securities that meet our primary investment strategy of maintaining and securing investment principal. The portfolio is managed by reputable firms that adhere to our investment policy that sets forth investment objectives, approved and prohibited investments, and duration and credit quality guidelines. Our policy, and the portfolio managers, are continually reviewed to ensure that the investments are aligned with our strategy.

The table below presents the major indicators of financial condition and liquidity:


(in millions)	(in millions)	June 30, 2021			December 31, 2020			Change	(in millions)	June 30, 2022			December 31, 2021			Change
Cash and marketable securities	Cash and marketable securities	$	3,951		$	3,346		18 %	Cash and marketable securities	$	3,425		$	3,116		10 %
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	103		%	94		%	9 pts	Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	47		%	57		%	(10) pts
Total debt		3,188			3,495			(9) %
Long-term debt, net of current portion									Long-term debt, net of current portion	1,961			2,173			(10)%
Shareholders’ equity	Shareholders’ equity	$	3,324		$	2,988		11%	Shareholders’ equity	$	3,799		$	3,801		—%


Debt-to-capitalization, adjusted for operating leases	Debt-to-capitalization, adjusted for operating leases								Debt-to-capitalization, adjusted for operating leases
(in millions)	(in millions)	June 30, 2021			December 31, 2020			Change	(in millions)	June 30, 2022			December 31, 2021			Change
Long-term debt, net of current portion	Long-term debt, net of current portion	$	2,319		$	2,357		(2)%	Long-term debt, net of current portion	$	1,961		$	2,173		(10)%
Capitalized operating leases	Capitalized operating leases	1,485			1,558			(5)%	Capitalized operating leases	1,779			1,547			15%
COVID-19 related borrowings(a)		425			734			(42)%

Adjusted debt, net of current portion of long-term debt	Adjusted debt, net of current portion of long-term debt	$	4,229		$	4,649		(9)%	Adjusted debt, net of current portion of long-term debt	$	3,740		$	3,720		1%
Shareholders' equity	Shareholders' equity	3,324			2,988			11%	Shareholders' equity	3,799			3,801			—%
Total invested capital	Total invested capital	$	7,553		$	7,637		(1)%	Total invested capital	$	7,539		$	7,521		—%

Debt-to-capitalization, including operating leases	Debt-to-capitalization, including operating leases	56		%	61		%	(5) pts	Debt-to-capitalization, including operating leases	50		%	49		%	1 pt

~~(a)~~To best reflect our leverage, we included the remaining short-term borrowings stemming from the COVID-19 pandemic in the above calculation, although these borrowings are classified as current in the condensed consolidated balance sheets.


Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent	Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent					Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent
(in millions)	(in millions)	June 30, 2021		December 31, 2020		(in millions)	June 30, 2022		December 31, 2021
Current portion of long-term debt	Current portion of long-term debt	$	869	$	1,138	Current portion of long-term debt	$	342	$	366
Current portion of operating lease liabilities	Current portion of operating lease liabilities	263		290		Current portion of operating lease liabilities	274		268
Long-term debt, net of current portion		2,319		2,357
Long-term debt						Long-term debt	1,961		2,173
Long-term operating lease liabilities, net of current portion	Long-term operating lease liabilities, net of current portion	1,222		1,268		Long-term operating lease liabilities, net of current portion	1,505		1,279
Total adjusted debt	Total adjusted debt	4,673		5,053		Total adjusted debt	4,082		4,086
Less: Cash and marketable securities	Less: Cash and marketable securities	(3,951)		(3,346)		Less: Cash and marketable securities	(3,425)		(3,116)
Adjusted net debt	Adjusted net debt	$	722	$	1,707	Adjusted net debt	$	657	$	970

(in millions)	(in millions)	Twelve Months Ended June 30, 2021		Twelve Months Ended December 31, 2020		(in millions)	Twelve Months Ended June 30, 2022		Twelve Months Ended December 31, 2021
GAAP Operating Loss(a)		$	(778)	$	(1,775)
GAAP Operating Income(a)						GAAP Operating Income(a)	$	282	$	685
Adjusted for:	Adjusted for:					Adjusted for:
Payroll Support Program grant wage offset and special items	Payroll Support Program grant wage offset and special items	(712)		71		Payroll Support Program grant wage offset and special items	208		(925)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(79)		(8)		Mark-to-market fuel hedge adjustments	(46)		(47)
Depreciation and amortization	Depreciation and amortization	400		420		Depreciation and amortization	405		394
Aircraft rent	Aircraft rent	268		299		Aircraft rent	276		254
EBITDAR	EBITDAR	$	(901)	$	(993)	EBITDAR	$	1,125	$	361
Adjusted net debt to EBITDAR	Adjusted net debt to EBITDAR	(0.8x)		(1.7x)		Adjusted net debt to EBITDAR	0.6x		2.7x

(a)Operating ~~loss~~Income can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC.

The following discussion summarizes the primary drivers of the increase in our cash and marketable securities balance and our expectation of future cash requirements.

ANALYSIS OF OUR CASH FLOWS

Cash Provided by Operating Activities

For the first six months of ~~2021,~~2022, net cash provided by operating activities was ~~$1.0~~$1.2 billion, compared to ~~$321 million~~$1.0 billion during the same period in ~~2020.~~2021. The ~~$686~~$228 million ~~increase in our operating cash flows is primarily attributable to a $712 million improvement to~~ net ~~income, aided by the receipt and recognition of $892 million in PSP grant funding made available by the U.S. Treasury. Additionally, improvement~~increase in our operating cash flows is due to ~~continued increases~~a combination of factors. First, we received $260 million in ~~advanced bookings and a significant reduction in refund activity when compared to~~federal income tax refunds during the first six months of ~~2020.~~2022. Additionally, growth in our air traffic liability resulting from historic levels of demand led to an increase in operating cash flows of $155 million compared to the same period in the prior year. These amounts were partially offset by uses of cash on increasing operating expenses as the business returned capacity back to the network.

Cash Used in Investing Activities

Cash used in investing activities was ~~$1.1 billion~~$721 million during the first six months of ~~2021,~~2022, compared to ~~$124 million~~$1.1 billion during the same period of ~~2020. The~~2021. Cash used in capital expenditures for aircraft purchase deposits and other property and equipment was $632 million in the first six months of 2022, compared to $102 million in the first six months of 2021. This increase toin cash used in ~~investing activities is primarily due to~~capital expenditures was offset by a decrease in net purchases of marketable securities, which were $87 million in the first six months of 2022, compared to $963 million in the first six months of 2021, compared to net sales of $34 million in the six months ended June 30, 2020. The shift to net purchases is primarily driven by additional cash on hand from increased operating cash flow and the PSP program, which allowed the Company to invest additional funds.2021.

Cash ~~Provided by (Used in)~~Used in Financing Activities

Cash used in financing activities was ~~$281~~$206 million during the first six months of ~~2021~~2022, compared to ~~cash provided by financing activities of $1.1 billion~~$281 million during the same period in ~~2020.~~2021. During the first six months of ~~2021,~~2022, we had no new proceeds from issuance of debt and utilized cash on hand to repay ~~$681~~$239 million of outstanding long-term debt, compared to debt proceeds of $363 million and payments of ~~$125~~$681 million during the same period in 2020. These payments were offset by proceeds from debt issuances of $363 million, primarily a result of the loan portion of the proceeds from the CARES Act PSP, compared to $1.3 billion issued in 2020 in response to the COVID-19 pandemic.2021.

~~CONTRACTUAL OBLIGATIONS AND~~MATERIAL CASH COMMITMENTS

Aircraft Commitments

As of June 30, ~~2021, we have~~2022, Alaska has firm orders to purchase 7560 Boeing 737 aircraft with deliveries in 2022 through 2024 and firm commitments to lease 13 aircraft. Alaska also has an agreement with SkyWest Airlines to expand our long-term capacity purchase agreement by eight aircraft in 2022. Alaska also has cancellable purchase commitments for 30 Airbus A320neosix Boeing 737-9 aircraft with deliveries ~~from 2024 through 2027. At this time, we do not expect to take delivery of these 30 Airbus aircraft.~~in 2022 and 2023. Alaska ~~also~~ has options to acquire ~~39 B737-9 MAX~~up to 11 additional Boeing 737-9 aircraft and 41 additional Boeing 737-10 aircraft with deliveries ~~from~~between 2024 ~~through 2026,~~ and 2026. Horizon has commitments to purchase 20 Embraer E175 aircraft with deliveries between 2022 and 2026. Horizon has options to acquire 2113 Embraer E175 aircraft ~~with deliveries from 2023 through 2024.~~between 2024 and 2025. Options will be exercised only if we believe return on invested capital targets can be met over the long term.

The following table summarizes our anticipated fleet count by year, as of June 30, ~~2021:~~2022:


		Actual Fleet	Anticipated Fleet Activity(a)								Actual Fleet	Anticipated Fleet Activity(a)
Aircraft	Aircraft	June 30, 2021	2021 Additions	2021 Removals	Dec 31, 2021	2022 Changes	Dec 31, 2022	2023 Changes	Dec 31, 2023	Aircraft	June 30, 2022	2022 Additions	2022 Removals	Dec 31, 2022	2023 Changes	Dec 31, 2023	2024 Changes	Dec 31, 2024
B737 Freighters		3	—	—	3	—	3	—	3
B737-700 Freighters										B737-700 Freighters	3	—	—	3	—	3	—	3
B737-800 Freighters										B737-800 Freighters	—	—	—	—	2	2	—	2
B737-700	B737-700	11	—	—	11	—	11	—	11	B737-700	11	—	—	11	—	11	—	11
B737-800	B737-800	61	—	—	61	—	61	—	61	B737-800	61	—	—	61	(2)	59	—	59
B737-900	B737-900	12	—	—	12	—	12	—	12	B737-900	12	—	—	12	—	12	—	12
B737-900ER	B737-900ER	79	—	—	79	—	79	—	79	B737-900ER	79	—	—	79	—	79	—	79
B737-9 MAX		5	7	—	12	31	43	22	65
A320(b)		21	7	(1)	27	(3)	24	(24)	—
B737-8										B737-8	—	—	—	—	5	5	5	10
B737-9										B737-9	28	14	—	42	31	73	5	78
B737-10										B737-10	—	—	—	—	—	—	6	6
A320(c)										A320(c)	29	—	(16)	13	(13)	—	—	—
A321neo	A321neo	10	—	—	10	—	10	—	10	A321neo	10	—	—	10	(10)	—	—	—
Total Mainline Fleet	Total Mainline Fleet	202	14	(1)	215	28	243	(2)	241	Total Mainline Fleet	233	14	(16)	231	13	244	16	260
Q400 operated by Horizon(c)	Q400 operated by Horizon(c)	32	—	—	32	—	32	—	32	Q400 operated by Horizon(c)	32	—	(11)	21	(21)	—	—	—
E175 operated by Horizon(c)		30	—	—	30	5	35	4	39
E175 operated by third party(c)		32	—	—	32	8	40	—	40
Total Regional Fleet		94	—	—	94	13	107	4	111
E175 operated by Horizon										E175 operated by Horizon	30	3	—	33	8	41	3	44
E175 operated by third party(d)										E175 operated by third party(d)	42	—	—	42	—	42	—	42
Total Regional Fleet(b)										Total Regional Fleet(b)	104	3	(11)	96	(13)	83	3	86
Total	Total	296	14	(1)	309	41	350	2	352	Total	337	17	(27)	327	—	327	19	346

(a)Anticipated fleet activity reflects intended early retirement and extensions or replacement of certain leases, not all of which have been contracted or agreed to by counterparties yet.

(b)Actual fleet at June 30, 2021, excluding Airbus aircraft permanently parked in response to COVID-19 capacity reductions. We have announced plans to return 12 of these aircraft to operating service, seven of which are planned for 2021 and five for 2022.

~~(c)~~Aircraft are either owned or leased by Horizon or operated under capacity purchase agreement with a third ~~party. Under~~party, which are not yet contracted.

(c)In the ~~terms~~first quarter of ~~our~~2022, management announced its intention to accelerate the retirement of the A320 and Q400 aircraft and remove them from the operating fleet by early 2023. Management continues to refine anticipated removal dates for individual aircraft, and as such, timing of removals may shift between 2022 and 2023.

(d)Alaska intends to expand its long-term capacity purchase agreement with ~~a third party,~~SkyWest Airlines by one Embraer E175 aircraft, with expected delivery in ~~2023 an additional spare aircraft will be leased to support the operational integrity of the network.~~2025.

For future firm orders and option exercises, we ~~may~~intend to finance the aircraft through cash flow from operations or long-term debt.

Fuel Hedge Positions

All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases. With call options, we are hedged against volatile crude oil price increases. During a period of decline in crude oil prices, we only forfeit cash previously paid for hedge premiums. We typically hedge up to 50% of our expected consumption. Our crude oil positions are as follows:
Approximate Gallons Hedged (in millions) Weighted-Average Crude Oil Price per Barrel Average Premium Cost per Barrel
Third Quarter 2021 100 $60 $2
Fourth Quarter 2021 90 $61 $3
Remainder of 2021 190 $60 $2
First Quarter 2022 80 $67 $3
Second Quarter 2022 60 $66 $3
Third Quarter 2022 40 $70 $3
Fourth Quarter 2022 20 $71 $3
Full Year 2022 200 $68 $3


	Approximate % of Expected Fuel Requirements(a)		Weighted-Average Crude Oil Price per Barrel	Average Premium Cost per Barrel












Third Quarter 2022	60	%	$80	$3
Fourth Quarter 2022	60	%	$88	$5
Remainder of 2022	60	%	$84	$4
First Quarter of 2023	40	%	$91	$7
Second Quarter of 2023	30	%	$97	$7
Third Quarter of 2023	20	%	$106	$8
Fourth Quarter of 2023	10	%	$108	$9
Full Year 2023	25	%	$98	$7

(a)We are hedged at approximately 60% of expected fuel consumption for the remainder of 2022 due to schedule reductions that occurred subsequent to the Company entering these positions.

Contractual Obligations

The following table provides a summary of our contractual obligations as of June 30, ~~2021.~~2022. For agreements with variable terms, amounts included reflect our minimum obligations.


(in millions)	(in millions)	Remainder of 2021		2022		2023		2024		2025		Beyond 2025		Total		(in millions)	Remainder of 2022		2023		2024		2025		2026		Beyond 2026		Total
Current and long-term debt obligations		$	227	$	796	$	334	$	240	$	261	$	1,353	$	3,211
Debt obligations																Debt obligations	$	146	$	329	$	235	$	256	$	176	$	1,178	$	2,320
Aircraft lease commitments(a)	Aircraft lease commitments(a)	162		280		219		167		159		633		1,620		Aircraft lease commitments(a)	167		279		222		217		213		896		1,994
Facility lease commitments	Facility lease commitments	6		10		9		8		6		88		127		Facility lease commitments	9		16		9		8		8		86		136
Aircraft-related commitments(b)	Aircraft-related commitments(b)	107		1,458		1,207		291		76		12		3,151		Aircraft-related commitments(b)	834		1,932		388		124		113		275		3,666

Interest obligations (c)	Interest obligations (c)	55		98		72		57		51		175		508		Interest obligations (c)	44		97		68		53		56		151		469
Other obligations (d)	Other obligations (d)	89		184		189		196		197		898		1,753		Other obligations (d)	100		199		206		210		207		832		1,754
Total	Total	$	646	$	2,826	$	2,030	$	959	$	750	$	3,159	$	10,370	Total	$	1,300	$	2,852	$	1,128	$	868	$	773	$	3,418	$	10,339

(a)Future minimum lease payments for aircraft includes commitments for aircraft which have been removed from operating service, as we have remaining obligation under existing terms.

(b)Includes non-cancelable contractual commitments for aircraft and engines, buyer furnished equipment, and contractual aircraft maintenance obligations. Contractual commitments do not reflect the impact of the impending fleet transition.

(c)For variable-rate debt, future obligations are shown above using interest rates forecast as of June 30, ~~2021.~~2022.

(d)~~Primarily comprised~~Comprised of non-aircraft lease costs associated with capacity purchase ~~agreements.~~agreements and other miscellaneous obligations.

Credit Card Agreements

We have agreements with a number of credit card companies to process the sale of tickets and other services. Under these agreements, there are material adverse change clauses that, if triggered, could result in the credit card companies holding back a reserve from our credit card receivables. Under one such agreement, we could be required to maintain a reserve if our credit rating is downgraded to or below a rating specified by the agreement or our cash and marketable securities balance fell below $500 million. Under another such agreement, we could be required to maintain a reserve if our cash and marketable securities balance fell below $500 million. We are not currently required to maintain any reserve under these agreements, but if we were, our financial position and liquidity could be materially harmed.

Leased Aircraft Return Costs

For many of our leased aircraft, we are required under the contractual terms to return the aircraft in a specified state. As a result of these contractual terms, we will incur significant costs to return these aircraft at the termination of the lease. Costs of returning leased aircraft are accrued when the costs are probable and reasonably estimable, usually over the twelve months prior to the lease return, unless a determination is made that the leased asset is removed from operation. If the leased aircraft is removed from the operating fleet, the estimated cost of return is accrued at the time of removal. Any accrual is based on the time remaining on the lease, planned aircraft usage and the provisions included in the lease agreement, although the actual amount due to any lessor upon return may not be known with certainty until lease termination. We anticipate recording material expenses and cash outflows to return aircraft in 2022 in conjunction with expected lease terminations and the accelerated exit of Airbus aircraft from Alaska's fleet.

Deferred Income Taxes

For federal income tax purposes, the majority of our assets are fully depreciated over a seven-year life using an accelerated depreciation method or bonus depreciation, if available. For financial reporting purposes, the majority of our assets are depreciated over 15 to 25 years to an estimated salvage value using the straight-line basis. This difference has created a significant deferred tax liability. At some point in the future the depreciation basis difference will reverse, including via asset impairment, potentially resulting in an increase in income taxes paid.

While it is possible that we could have material cash obligations for this deferred liability at some point in the future, we cannot estimate the timing of long-term cash flows with reasonable accuracy. Taxable income or loss and cash taxes payable and refundable in the short-term are impacted by many items, including the amount of book income generated (which can be volatile depending on revenue, demand for air travel and fuel prices), usage of net operating losses, whether "bonus depreciation" provisions are available, any future tax reform efforts at the federal level, as well as other legislative changes that are beyond our control.

CRITICAL ACCOUNTING ESTIMATES

~~There have been no material changes to our critical accounting estimates during the three months ended June 30, 2021. For~~Except as described below, for information onregarding our critical accounting estimates, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

FREQUENT FLYER PROGRAMS

The rate at which we defer sales proceeds related to services sold:

Following the amendment of our agreement with our co-brand bank card partner in the first quarter, the Company updated the standalone selling price for performance obligations in the contract. Updated standalone selling prices became effective as of January 1, 2022.

The number of miles that will not be redeemed for travel (breakage):

Following its review of significant Mileage Plan assumptions, the Company updated its breakage estimate for the portion of loyalty mileage credits not expected to be redeemed, effective January 1, 2022. This update was made following a study that used a statistical analysis of historical data. At June 30, 2022, the deferred revenue balance associated with the Mileage Plan program was $2.4 billion. A hypothetical 1% change in the amount of outstanding miles estimated to be redeemed would result in an approximately $7 million impact on annual revenue recognized.

GLOSSARY OF AIRLINE TERMS

Adjusted net debt - long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities

Adjusted net debt to EBITDAR - represents adjusted net debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or “capacity”; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus capitalized operating leases) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of settled fuel-hedging contracts in the period

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737, Airbus 320 family and Airbus 321neo jets and all associated ~~revenues~~revenue and costs

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage ~~Plan™~~Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest under the respective capacity purchased arrangement (CPA). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, and other administrative costs incurred by Alaska and on behalf of Horizon.

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

4243


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes in market risk from the information provided in Item 7A. “Quantitative and Qualitative Disclosure About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

4344


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, ~~2021,~~2022, an evaluation was performed under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (collectively, our “certifying officers”), of the effectiveness of the design and operation of our disclosure controls and procedures. These disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in our periodic reports filed with or submitted to the Securities and Exchange Commission (the SEC) is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and includes, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our certifying officers, as appropriate, to allow timely decisions regarding required disclosure. Our certifying officers concluded, based on their evaluation, that disclosure controls and procedures were effective as of June 30, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting during the quarter ended June 30, ~~2021,~~2022, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Our internal control over financial reporting is based on the 2013 framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework).

4445

PART II


ITEM 1. LEGAL PROCEEDINGS

~~In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as~~pursued numerous appeal paths following a ~~successor-in-interest to Virgin America, responsible for various damages and penalties sought by the class members. In~~ February 2019 ~~the Court entered final judgment~~federal district court order against Virgin America and Alaska Airlines ~~in the amount of~~awarding plaintiffs approximately $78 ~~million. It did not award injunctive relief against Alaska Airlines. In February 2021, an~~million, including approximately $25 million in penalties under California’s Private Attorneys General Act (PAGA). An appellate court reversed portions of the lower court decision and significantly reduced the ~~judgment.~~PAGA penalties and total judgment value. In June 2022, the U.S. Supreme Court declined to take the Company’s appeal for a conclusive ruling that the California laws on which the judgment is based are invalid as applied to airlines. The ~~determination of~~decision leaves open the possibility that other states in the Ninth Circuit judicial district may attempt to apply similar laws to airlines.

The Company is ~~seeking~~analyzing a range of potential options to balance new compliance obligations with operational and labor considerations. Some or all of these solutions may have an ~~appellate court ruling that~~adverse impact on the ~~California laws on which the judgment is based are invalid as applied to national airlines pursuant~~Company’s operations and financial position due in part to the ~~U.S. Constitution~~unresolved conflicts between the laws and federal ~~law and for other employment law and improper class certification reasons. The Company remains confident that a higher court will respect the federal preemption principles that were enacted~~regulations applicable to ~~shield inter-state common carriers from a patchwork of state and local wage and hour regulations such as those at issue in this case and agree with the Company's other bases for appeal.~~


ITEM 1A. RISK FACTORS

~~There have been no material changes to the~~See Part I, Item 1A. "Risk Factors," in our 2021 Form 10-K for a detailed discussion of risk factors affecting ~~our business, financial condition or future results from those set forth in Item 1A."Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.~~Alaska Air Group.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Historically, the Company purchased shares pursuant to a $1 billion repurchase plan authorized by the Board of Directors in August 2015. In March 2020, subject to restrictions under the CARES Act, the Company suspended the share repurchase program indefinitely. These restrictions are effective until October 1, 2022. When the repurchase program is restarted, the plan has remaining authorization to purchase an additional $456 million in shares.

~~In the second quarter~~As of 2021, the Company issued 271,437 warrants to the United States Department of the Treasury (“Treasury”) in connection with the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act, resulting in warrants to purchaseJune 30, 2022, a total of ~~1,455,436~~1,455,438 shares of the Company’s common stock ~~that~~ have been issued to Treasury in connection with the ~~payroll support program.~~Payroll Support Program. Each warrant is exercisable at a strike price of ~~$52.25 (49,625~~$31.61 (928,127 shares related to PSP1), $52.25 (305,499 shares related to PSP2), and $66.39 (221,812 shares related to PSP3) per share of common stock and will expire on the fifth anniversary of the issue date of the warrant. Such warrants were issued to Treasury in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. MINE SAFETY DISCLOSURES

None.


ITEM 5. OTHER INFORMATION

None.


ITEM 6. EXHIBITS

The following documents are filed as part of this report:

1.Exhibits: See Exhibit Index.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


ALASKA AIR GROUP, INC.

/s/ ~~CHRISTOPHER M. BERRY~~EMILY HALVERSON
~~Christopher M. Berry~~Emily Halverson
Vice President Finance and Controller

August ~~3, 2021~~2, 2022

4647

EXHIBIT INDEX
Exhibit
Number Exhibit
Description Form Date of First Filing Exhibit Number
3.1
Amended and Restated Certificate of Incorporation of Registrant
10-Q August 3, 2017 3.1
4.1†
Closing Date Warrant to Purchase Common Stock, dated April 8, 2021
4.2†
Closing Date Warrant to Purchase Common Stock, dated April 29, 2021
4.3†
Closing Date Warrant to Purchase Common Stock, dated April 29, 2021
4.4†
Closing Date Warrant to Purchase Common Stock, dated April 29, 2021
4.5†
Closing Date Warrant to Purchase Common Stock, dated June 3, 2021
4.6†
Promissory note, dated April 29, 2021, by Alaska Airlines, Inc., issuer, and each of Alaska Air Group, Inc. and Horizon Air Industries, Inc., as guarantors
10.1†
Payroll Support Program 3 Agreement, dated April 29, 2021, between Alaska Airlines, Inc., and the United States Department of the Treasury
10.2†
Warrant Agreement, dated April 29, 2021, between Alaska Air Group, Inc. and the United States Department of the Treasury
10.3†
Supplemental Agreement No. 16 to Purchase Agreement No. 3866 between the Boeing Company and Alaska Airlines, Inc.
10.4†
Supplemental Agreement No. 17 to Purchase Agreement No. 3866 between the Boeing Company and Alaska Airlines, Inc.
10.5†*
Amendment No. 15 to Purchase Agreement dated April 11, 2016, between Embraer S.A. and Horizon Air Industries, Inc.
10.6†
Alaska Air Group Performance Based Pay Plan, Amended and Restated May 6, 2021
10.7†
Alaska Air Group Operational Performance Rewards Plan Description, adopted January 3, 2005; Amended May 6, 2021
31.1†
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10-Q
31.2†
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10-Q
32.1†
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10-Q
32.2†
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10-Q
101.INS† XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document.
101.SCH† XBRL Taxonomy Extension Schema Document
101.CAL† XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF† XBRL Taxonomy Extension Definition Linkbase Document
101.LAB† XBRL Taxonomy Extension Label Linkbase Document
101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document
† Filed herewith
* Certain confidential portions have been redacted from this exhibit in accordance with Item 601(b)(10) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

Exhibit
Number

Exhibit
Description

Form

Date of First Filing

Exhibit Number

3.1

Amended and Restated Certificate of Incorporation of Registrant

10-Q

August 3, 2017

3.1

10.1#†

Supplement Agreement No. 20 to Purchase Agreement No. 3866 between the Boeing Company and Alaska Airlines, Inc.

10-Q

10.2#†

Amendment No. 19 to Purchase Agreement COM0041-16 between Embraer S.A. and Horizon Air Industries, Inc.

10-Q

10.3*†

Alaska Air Group, Inc. Employee Stock Purchase Plan, as Amended for the Offering Period Commencing November 1, 2022

10-Q

31.1†

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

10-Q

31.2†

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

10-Q

32.1†

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

10-Q

32.2†

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

10-Q

101.INS†

XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document.

101.SCH†

XBRL Taxonomy Extension Schema Document

101.CAL†

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†

XBRL Taxonomy Extension Label Linkbase Document

101.PRE†

XBRL Taxonomy Extension Presentation Linkbase Document

†

Filed herewith

Indicates management contract or compensatory plan or arrangement.

Certain confidential portions have been redacted from this exhibit in accordance with Item 601(b)(10) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

4748


PART I.	FINANCIAL INFORMATION	4
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	4344
ITEM 4.	CONTROLS AND PROCEDURES	4445
PART II.	OTHER INFORMATION	4546
ITEM 1.	LEGAL PROCEEDINGS	4546
ITEM 1A.	RISK FACTORS	4546
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4546
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	4546
ITEM 4.	MINE SAFETY DISCLOSURES	46
ITEM 5.	OTHER INFORMATION	46
ITEM 6.	EXHIBITS	4647
	SIGNATURES	4647


	Grants		Loans		Warrants		Total Proceeds
PSP 1	$	757	$	293	$	9	$	1,059
PSP 2	457		160		9		626
PSP 3	431		147		7		585
Total	$	1,645	$	600	$	25	$	2,270


	June 30, 2021		December 31, 2020
Related to marketable securities	$	10	$	23
Related to employee benefit plans	(485)		(498)
Related to interest rate derivatives	(12)		(19)
Total	$	(487)	$	(494)


	Approximate Gallons Hedged (in millions)	Weighted-Average Crude Oil Price per Barrel	Average Premium Cost per Barrel







Third Quarter 2021	100	$60	$2
Fourth Quarter 2021	90	$61	$3
Remainder of 2021	190	$60	$2
First Quarter 2022	80	$67	$3
Second Quarter 2022	60	$66	$3
Third Quarter 2022	40	$70	$3
Fourth Quarter 2022	20	$71	$3
Full Year 2022	200	$68	$3