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 ~~March 31,~~June 30, 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 ~~126,091,824~~126,764,811 common shares, par value $0.01, outstanding at ~~April 30,~~July 31, 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 ~~MARCH 31,~~JUNE 30, 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, 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)	March 31, 2022		December 31, 2021		(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	$	628	$	470	Cash and cash equivalents	$	778	$	470
Marketable securities	Marketable securities	2,262		2,646		Marketable securities	2,647		2,646
Total cash and marketable securities	Total cash and marketable securities	2,890		3,116		Total cash and marketable securities	3,425		3,116
Receivables - net	Receivables - net	658		546		Receivables - net	401		546
Inventories and supplies - net	Inventories and supplies - net	78		62		Inventories and supplies - net	93		62
Prepaid expenses and other current assets	Prepaid expenses and other current assets	348		196		Prepaid expenses and other current assets	313		196
Total Current Assets	Total Current Assets	3,974		3,920		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	8,244		8,127		Aircraft and other flight equipment	8,569		8,127
Other property and equipment	Other property and equipment	1,529		1,489		Other property and equipment	1,532		1,489
Deposits for future flight equipment	Deposits for future flight equipment	283		384		Deposits for future flight equipment	292		384
		10,056		10,000			10,393		10,000
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	3,814		3,862		Less accumulated depreciation and amortization	3,922		3,862
Total Property and Equipment - Net	Total Property and Equipment - Net	6,242		6,138		Total Property and Equipment - Net	6,471		6,138

Other Assets	Other Assets					Other Assets
Operating lease assets	Operating lease assets	1,541		1,453		Operating lease assets	1,669		1,453
Goodwill and intangible assets	Goodwill and intangible assets	2,042		2,044		Goodwill and intangible assets	2,041		2,044
Other noncurrent assets	Other noncurrent assets	411		396		Other noncurrent assets	387		396
Total Other Assets	Total Other Assets	3,994		3,893		Total Other Assets	4,097		3,893

Total Assets	Total Assets	$	14,210	$	13,951	Total Assets	$	14,800	$	13,951

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions, except share amounts)	(in millions, except share amounts)	March 31, 2022		December 31, 2021		(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	$	299	$	200	Accounts payable	$	286	$	200
Accrued wages, vacation and payroll taxes	Accrued wages, vacation and payroll taxes	367		457		Accrued wages, vacation and payroll taxes	416		457
Air traffic liability	Air traffic liability	1,643		1,163		Air traffic liability	1,778		1,163
Other accrued liabilities	Other accrued liabilities	659		625		Other accrued liabilities	794		625
Deferred revenue	Deferred revenue	1,038		912		Deferred revenue	1,012		912
Current portion of operating lease liabilities	Current portion of operating lease liabilities	272		268		Current portion of operating lease liabilities	274		268
Current portion of long-term debt	Current portion of long-term debt	292		366		Current portion of long-term debt	342		366
Total Current Liabilities	Total Current Liabilities	4,570		3,991		Total Current Liabilities	4,902		3,991

Long-Term Debt, Net of Current Portion	Long-Term Debt, Net of Current Portion	2,078		2,173		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	1,357		1,279		Long-term operating lease liabilities, net of current portion	1,505		1,279
Deferred income taxes	Deferred income taxes	509		578		Deferred income taxes	552		578
Deferred revenue	Deferred revenue	1,394		1,446		Deferred revenue	1,429		1,446
Obligation for pension and post-retirement medical benefits	Obligation for pension and post-retirement medical benefits	302		305		Obligation for pension and post-retirement medical benefits	299		305
Other liabilities	Other liabilities	363		378		Other liabilities	353		378
Total Noncurrent Liabilities	Total Noncurrent Liabilities	3,925		3,986		Total Noncurrent Liabilities	4,138		3,986

Commitments and Contingencies (Note 7)	Commitments and Contingencies (Note 7)	0		0		Commitments and Contingencies (Note 7)	0		0

Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
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	—		—		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 - 135,437,808 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,087,864 shares; 2021 - 125,905,864 shares		1		1
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	503		494		Capital in excess of par value	542		494
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)		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	(292)		(262)		Accumulated other comprehensive loss	(308)		(262)
Retained earnings	Retained earnings	4,099		4,242		Retained earnings	4,238		4,242
		3,637		3,801			3,799		3,801
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	14,210	$	13,951	Total Liabilities and Shareholders' Equity	$	14,800	$	13,951

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share amounts)	(in millions, except per share amounts)	2022		2021			(in millions, except per share amounts)	2022		2021		2022		2021
Operating Revenues	Operating Revenues						Operating Revenues
Passenger revenue	Passenger revenue	$	1,511	$	659		Passenger revenue	$	2,418	$	1,352	$	3,929	$	2,011
Mileage Plan other revenue	Mileage Plan other revenue	112		94			Mileage Plan other revenue	175		118		287		212
Cargo and other	Cargo and other	58		44			Cargo and other	65		57		123		101
Total Operating Revenues	Total Operating Revenues	1,681		797			Total Operating Revenues	2,658		1,527		4,339		2,324
Operating Expenses	Operating Expenses						Operating Expenses
Wages and benefits	Wages and benefits	606		493			Wages and benefits	639		510		1,245		1,003
Variable incentive pay	Variable incentive pay	36		33			Variable incentive pay	56		34		92		67
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	—		(411)			Payroll Support Program grant wage offset	—		(503)		—		(914)
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	347		203			Aircraft fuel, including hedging gains and losses	776		274		1,123		477
Aircraft maintenance	Aircraft maintenance	135		81			Aircraft maintenance	104		102		239		183
Aircraft rent	Aircraft rent	73		62			Aircraft rent	73		62		146		124
Landing fees and other rentals	Landing fees and other rentals	138		129			Landing fees and other rentals	136		144		274		273
Contracted services	Contracted services	78		51			Contracted services	82		54		160		105
Selling expenses	Selling expenses	58		33			Selling expenses	78		41		136		74
Depreciation and amortization	Depreciation and amortization	102		97			Depreciation and amortization	104		98		206		195
Food and beverage service	Food and beverage service	41		23			Food and beverage service	50		35		91		58
Third-party regional carrier expense	Third-party regional carrier expense	42		30			Third-party regional carrier expense	50		37		92		67
Other	Other	152		105			Other	177		117		329		222
Special items - fleet transition and related charges	Special items - fleet transition and related charges	75		18			Special items - fleet transition and related charges	146		(4)		221		14
Special items - restructuring charges	Special items - restructuring charges	—		11			Special items - restructuring charges	—		(23)		—		(12)

Total Operating Expenses	Total Operating Expenses	1,883		958			Total Operating Expenses	2,471		978		4,354		1,936
Operating Loss		(202)		(161)
Operating Income (Loss)							Operating Income (Loss)	187		549		(15)		388

Non-operating Income (Expense)	Non-operating Income (Expense)						Non-operating Income (Expense)
Interest income	Interest income	7		7			Interest income	11		6		18		13
Interest expense	Interest expense	(27)		(32)			Interest expense	(26)		(39)		(53)		(71)
Interest capitalized	Interest capitalized	2		3			Interest capitalized	3		3		5		6
Other - net	Other - net	14		10			Other - net	10		9		24		19
Total Non-operating Expense		(4)		(12)
Loss Before Income Tax		(206)		(173)
Income tax benefit		(63)		(42)
Net Loss		$	(143)	$	(131)
Total Non-operating Income (Expense)							Total Non-operating Income (Expense)	(2)		(21)		(6)		(33)
Income (Loss) Before Income Tax							Income (Loss) Before Income Tax	185		528		(21)		355
Income tax expense (benefit)							Income tax expense (benefit)	46		131		(17)		89
Net Income (Loss)							Net Income (Loss)	$	139	397		$	(4)	$	266

Basic Loss Per Share:		$	(1.14)	$	(1.05)
Diluted Loss Per Share:		$	(1.14)	$	(1.05)
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	125.984		124.299			Basic	126.543		124.977		126.265		124.640
Diluted	Diluted	125.984		124.299			Diluted	127.795		126.825		126.265		126.388

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	(in millions)	2022		2021			(in millions)	2022		2021		2022		2021
Net Loss		$	(143)	$	(131)
Net Income (Loss)							Net Income (Loss)	$	139	$	397	$	(4)	$	266
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax						Other comprehensive income (loss), net of tax
Marketable securities	Marketable securities	(40)		(12)			Marketable securities	(20)		(1)		(60)		(13)
Employee benefit plans	Employee benefit plans	1		6			Employee benefit plans	—		7		1		13
Interest rate derivative instruments	Interest rate derivative instruments	9		6			Interest rate derivative instruments	4		1		13		7
Total comprehensive loss, net		$	(173)	$	(131)
Total other comprehensive income (loss), net of tax							Total other comprehensive income (loss), net of tax	$	(16)	$	7	$	(46)	$	7

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

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)


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

Stock-based compensation	Stock-based compensation	—	—		13		—		—		—		13		Stock-based compensation	—	—		13		—		—		—		13

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

Stock-based compensation															Stock-based compensation	0.017	—		9		—		—		—		9

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


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

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

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

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

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

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
(in millions)	(in millions)	2022		2021		(in millions)		2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net Loss		$	(143)	$	(131)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net Income (Loss)						Net Income (Loss)		$	(4)	$	266
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	102		97		Depreciation and amortization		206		195
Stock-based compensation and other	Stock-based compensation and other	5		12		Stock-based compensation and other		20		24
Special items - fleet transition and related charges	Special items - fleet transition and related charges	75		18		Special items - fleet transition and related charges		221		14
Special items - restructuring charges	Special items - restructuring charges	—		11		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	(58)		(39)		Changes in deferred tax provision		(14)		33
Increase in accounts receivable	Increase in accounts receivable	(112)		(37)		Increase in accounts receivable		(115)		(86)
Increase in air traffic liability	Increase in air traffic liability	480		224		Increase in air traffic liability		615		460
Increase in deferred revenue	Increase in deferred revenue	74		48		Increase in deferred revenue		83		69

Federal income tax refund						Federal income tax refund		260		—
Other - net	Other - net	(136)		(36)		Other - net		(37)		44
Net cash provided by operating activities	Net cash provided by operating activities	287		167		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	(207)		(3)		Aircraft and aircraft purchase deposits		(509)		(30)
Other flight equipment	Other flight equipment	(24)		(11)		Other flight equipment		(69)		(38)
Other property and equipment	Other property and equipment	(57)		(13)		Other property and equipment		(54)		(34)
Total property and equipment additions, including capitalized interest	Total property and equipment additions, including capitalized interest	(288)		(27)		Total property and equipment additions, including capitalized interest		(632)		(102)
Purchases of marketable securities	Purchases of marketable securities	(552)		(1,243)		Purchases of marketable securities		(1,410)		(2,524)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	880		732		Sales and maturities of marketable securities		1,323		1,561
Other investing activities	Other investing activities	(1)		(5)		Other investing activities		(2)		(5)
Net cash provided by (used in) investing activities		39		(543)
Net cash used in investing activities						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	—		189		Proceeds from issuance of debt		—		363

Long-term debt payments	Long-term debt payments	(170)		(115)		Long-term debt payments		(239)		(681)
Other financing activities	Other financing activities	2		8		Other financing activities		33		37
Net cash provided by (used in) financing activities		(168)		82
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	158		(294)		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	494		1,386		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	$	652	$	1,092	Cash, cash equivalents, and restricted cash at end of the period		$	802	$	1,042


		Three Months Ended March 31,					Six Months Ended June 30,
(in millions)	(in millions)	2022		2021		(in millions)		2022		2021

Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest (net of amount capitalized)	Interest (net of amount capitalized)	$	35	$	50	Interest (net of amount capitalized)		$	35	$	61
Income taxes	Income taxes	—		—		Income taxes		—		—

Non-cash transactions:	Non-cash transactions:					Non-cash transactions:
Right-of-use assets acquired through operating leases	Right-of-use assets acquired through operating leases	158		75		Right-of-use assets acquired through operating leases		378		77

Reconciliation of cash, cash equivalents, and restricted cash at end of the period	Reconciliation of cash, cash equivalents, and restricted cash at end of the period					Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents	Cash and cash equivalents	628		1,076		Cash and cash equivalents		778		1,025
Restricted cash included in Prepaid expenses and other current assets	Restricted cash included in Prepaid expenses and other current assets	24		16		Restricted cash included in Prepaid expenses and other current assets		24		17
Total cash, cash equivalents, and restricted cash at end of the period	Total cash, cash equivalents, and restricted cash at end of the period	$	652	$	1,092	Total cash, cash equivalents, and restricted cash at end of the period		$	802	$	1,042

NOTES TO 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, 2021. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of ~~March 31,~~June 30, 2022 and the results of operations for the three and six months ended ~~March 31,~~June 30, 2022 and 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 ~~March 31,~~June 30, 2022 are not necessarily indicative of operating results for the entire year.

NOTE 2. 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 ~~30 operating~~ Airbus A320 aircraft, with all expected to exit the fleet by early 2023. Alaska also operates ~~ten~~ A321neo aircraft, and is evaluating options to remove them from its fleet by the end of 2023, subject to agreement with counterparties. ~~Also by the end~~The Company operated 29 A320 and ten A321neo aircraft as of ~~2023,~~June 30, 2022. Horizon ~~will exit~~plans to retire its Q400 fleet, which includes 25 owned and 7seven leased aircraft in operation at ~~March 31, 2022.~~June 30, 2022, in early 2023.

Valuation of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes indicate that the total carrying amount of an asset or asset group may not be recoverable. ~~The decisions made by~~During the ~~Company to accelerate the retirement~~first quarter of the A320 and Q400 aircraft represented a significant adverse change in the extent in which those long-lived asset group would be used and an expectation that each asset group would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives. Indicators of impairment were not present for the A321neo aircraft as the majority of these aircraft have contractual lease return dates through 2029 to 2031, and are high-demand assets given their relative age and desirable technology.

For the purposes of recoverability testing, assets are grouped at the individual fleet level, which is the lowest level for which identifiable cash flows are available. The Company performed recoverability tests for the A320 and Q400 fleets, comparing the sum of estimated undiscounted future cash flows expected to be directly generated by each asset group to the asset group's carrying value. Future cash flows were estimated utilizing a combination of historical data, forecasted results, and anticipated use of the aircraft as of March 31, 2022. The analysis indicated the A320 fleet was recoverable and no impairment measurement was required. However, the Company will adjust the useful lives of the A320 aircraft and related assets to correspond with the anticipated cease-use date. The analysis indicated the Q400 fleet was not recoverable, and impairment measurement was required.

The Company evaluated the fair market value for the Q400 fleet using available market price information with adjustments based on quantitative and qualitative considerations. Based on this fair market value,2022, the Company recorded an impairment charge of $70 million related to the Q400 fleet, reflecting the amount by which carrying value exceeded fair value of the owned Q400 ~~aircraft.~~aircraft as of March 31, 2022. This amount ~~is included~~was recorded within the "Special items - fleet transition and related charges" line ~~within~~in the consolidated statement of operations. Refer to Note 2 to our consolidated financial statements in our Quarterly Report on Form 10-Q for the three months ended March 31, 2022 for additional details.

In the second quarter, the Company 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 rent expenses. These accelerated schedules are based on the dates the aircraft are expected to be removed from operating service and were effective beginning this quarter. Incremental costs associated with the accelerated schedules are recognized within the "Special items - fleet transition and related charges" line item.

The Company has estimated future lease return costs for the 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 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 second quarter, all lease return costs were recorded within the "Special items - fleet transition and related charges" line in the consolidated statement of operations.

A summary of special charges for fleet transition activities is included below for the three and six months ended June 30, 2022. The impairment charges are one-time in nature, while the other special charges continue to be recorded consistent with the

~~operations. In conjunction~~schedules described above. The majority of remaining special charges associated with the ~~impairment, the Company adjusted the useful lives of Q400 aircraft and related assets~~fleet transition will be recorded in 2022, with additional amounts to ~~correspond with the anticipated cease-use date.~~

be recorded in 2023. The Company will continue to evaluate the need for further impairment or adjustments for owned and leased long-lived assets as fleet decisions evolve.

~~Other Special Items~~


	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

In addition to the impairment described above, the Company recorded $5 million incremental expense to "Special items - fleet transition and related charges" within the condensed consolidated statement of operations. This includes adjustments related to the outstanding accrual for costs to return leased aircraft and a write-down of right of use assets for two A320 aircraft for which return to service work was initiated but was subsequently ceased.

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, and certain revenue from the frequent flyer program. Mileage Plan other revenue includes brand and marketing revenue from 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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Passenger ticket revenue, including ticket breakage, net of taxes and fees	Passenger ticket revenue, including ticket breakage, net of taxes and fees	$	1,232	$	525		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	91		50			Passenger ancillary revenue	119		84		210		134
Mileage Plan passenger revenue	Mileage Plan passenger revenue	188		84			Mileage Plan passenger revenue	247		154		435		238
Total Passenger revenue	Total Passenger revenue	$	1,511	$	659		Total Passenger revenue	$	2,418	$	1,352	$	3,929	$	2,011

Mileage Plan Loyalty Program

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


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Passenger revenue	Passenger revenue	$	188	$	84		Passenger revenue	$	247	$	154	$	435	$	238
Mileage Plan other revenue	Mileage Plan other revenue	112		94			Mileage Plan other revenue	175		118		287		212
Total Mileage Plan revenue	Total Mileage Plan revenue	$	300	$	178		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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Cargo revenue	Cargo revenue	$	29	$	27		Cargo revenue	$	36	$	34	$	65	$	61
Other revenue	Other revenue	29		17			Other revenue	29		23		58		40
Total Cargo and other revenue	Total Cargo and other revenue	$	58	$	44		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 ~~$390~~$132 million and ~~$136~~$36 million from the prior year-end air traffic liability balance for the three months ended ~~March 31,~~June 30, 2022 and 2021, and $522 million and $175 million for the six months ended June 30, 2022 and 2021.

Mileage Plan assets and liabilities

The Company records a receivable for amounts due from the affinity card partner and from other partners as mileage credits are sold until the payments are collected. The Company had ~~$108~~$76 million of such receivables as of ~~March 31,~~June 30, 2022 and $64 million as of December 31, 2021. ~~As demand for air travel remains unpredictable, the timing of recognition of mileage credits may differ from current assumptions.~~

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


		Three Months Ended March 31,						Six Months Ended June 30,
			2022		2021				2022		2021
Total Deferred revenue balance at January 1	Total Deferred revenue balance at January 1		$	2,358	$	2,277	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		(176)		(84)		Travel miles and companion certificate redemption - Passenger revenue		(409)		(238)
Miles redeemed on partner airlines - Other revenue	Miles redeemed on partner airlines - Other revenue		(9)		(4)		Miles redeemed on partner airlines - Other revenue		(26)		(17)
Increase in liability for mileage credits issued	Increase in liability for mileage credits issued		259		136		Increase in liability for mileage credits issued		518		324
Total Deferred revenue balance at March 31			$	2,432	$	2,325
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 ~~March 31,~~June 30, 2022, total cost basis for all marketable securities was ~~$2.3 billion. In the three months ended March 31, 2022,~~$2.7 billion, compared to a total fair value of ~~marketable securities declined by $57 million~~$2.6 billion. The decline in value is primarily due 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 ~~March 31,~~June 30, 2022.

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


		March 31, 2022						December 31, 2021							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	$	416	$	—	$	416	$	331	$	—	$	331	U.S. government and agency securities	$	522	$	—	$	522	$	331	$	—	$	331
Equity mutual funds	Equity mutual funds	6		—		6		6		—		6		Equity mutual funds	5		—		5		6		—		6
Foreign government bonds	Foreign government bonds	—		29		29		—		38		38		Foreign government bonds	—		28		28		—		38		38
Asset-backed securities	Asset-backed securities	—		244		244		—		311		311		Asset-backed securities	—		278		278		—		311		311
Mortgage-backed securities	Mortgage-backed securities	—		190		190		—		232		232		Mortgage-backed securities	—		218		218		—		232		232
Corporate notes and bonds	Corporate notes and bonds	—		1,314		1,314		—		1,663		1,663		Corporate notes and bonds	—		1,549		1,549		—		1,663		1,663
Municipal securities	Municipal securities	—		63		63		—		65		65		Municipal securities	—		47		47		—		65		65
Total Marketable securities	Total Marketable securities	422		1,840		2,262		337		2,309		2,646		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	—		203		203		—		81		81		Fuel hedge - call options	—		175		175		—		81		81
Interest rate swap agreements	Interest rate swap agreements	—		6		6		—		—		—		Interest rate swap agreements	—		9		9		—		—		—
Total Assets	Total Assets	$	422	$	2,049	$	2,471	$	337	$	2,390	$	2,727	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	—		(2)		(2)		—		(9)		(9)		Interest rate swap agreements	—		—		—		—		(9)		(9)
Total Liabilities	Total Liabilities	$	—	$	(2)	$	(2)	$	—	$	(9)	$	(9)	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

Maturities for marketable securities (in millions):


March 31, 2022		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	$	628	$	626	Due in one year or less	$	803	$	799
Due after one year through five years	Due after one year through five years	1,651		1,597		Due after one year through five years	1,895		1,818
Due after five years	Due after five years	34		33		Due after five years	27		24

Total	Total	$	2,313	$	2,256	Total	$	2,725	$	2,641

As of ~~March 31,~~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 ~~March 31,~~June 30, 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 ~~$750~~$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):


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021

Total fixed-rate debt	Total fixed-rate debt	$	1,752	$	1,821	Total fixed-rate debt	$	1,731	$	1,821

Estimated fair value	Estimated fair value	$	1,770	$	1,919	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. Refer to Note 2 for discussion regarding impairment charges recorded during the ~~three~~six months ended ~~March 31,~~June 30, 2022.

NOTE 5. LONG-TERM DEBT

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


		March 31, 2022			December 31, 2021				June 30, 2022			December 31, 2021
Fixed-rate notes payable due through 2029	Fixed-rate notes payable due through 2029	$	150		$	163		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			600			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	1,002			1,058			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	636			738			Variable-rate notes payable due through 2029	589			738
Less debt issuance costs	Less debt issuance costs	(18)			(20)			Less debt issuance costs	(17)			(20)
Total debt	Total debt	2,370			2,539			Total debt	2,303			2,539
Less current portion	Less current portion	292			366			Less current portion	342			366
Long-term debt, less current portion	Long-term debt, less current portion	$	2,078		$	2,173		Long-term debt, less current portion	$	1,961		$	2,173

Weighted-average fixed-interest rate	Weighted-average fixed-interest rate	3.6		%	3.7		%	Weighted-average fixed-interest rate	3.6		%	3.7		%
Weighted-average variable-interest rate	Weighted-average variable-interest rate	1.7		%	1.3		%	Weighted-average variable-interest rate	2.8		%	1.3		%

Approximately ~~$396~~$372 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at ~~March 31,~~June 30, 2022, resulting in an effective weighted-average interest rate for the full debt portfolio of ~~3.3%~~3.4%.

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company made scheduled debt payments of ~~$170 million.~~

$222 million and prepayments of $17 million for loans related to Q400 aircraft.

Debt Maturity

At ~~March 31,~~June 30, 2022, long-term debt principal payments for the next five years and thereafter are as follows (in millions):


		Total			Total
Remainder of 2022	Remainder of 2022	$	201	Remainder of 2022	$	146
2023	2023	334		2023	329
2024	2024	240		2024	235
2025	2025	261		2025	256
2026	2026	176		2026	176
Thereafter	Thereafter	1,176		Thereafter	1,178
Total	Total	$	2,388	Total	$	2,320

Bank Lines of Credit

Alaska has 3 credit facilities totaling $486 million as of ~~March 31,~~June 30, 2022. One of the credit facilities for $150 million expires in March 2025 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. A second credit facility for $250 million expires in June 2024 and is secured by aircraft. 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.

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. Alaska was in compliance with this covenant at ~~March 31,~~June 30, 2022.

NOTE 6. EMPLOYEE BENEFIT PLANS

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


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Service cost	Service cost	$	11	$	13		Service cost	$	11	$	13	$	22	$	26
Pension expense included in Wages and benefits	Pension expense included in Wages and benefits	11		13			Pension expense included in Wages and benefits	11		13		22		26

Interest cost	Interest cost	16		14			Interest cost	16		14		32		28
Expected return on assets	Expected return on assets	(32)		(31)			Expected return on assets	(32)		(30)		(64)		(61)

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

NOTE 7. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of ~~March 31,~~June 30, 2022 (in millions):


		Aircraft Commitments(a)		Capacity Purchase Agreements (b)			Aircraft Commitments(a)		Capacity Purchase Agreements (b)
Remainder of 2022	Remainder of 2022	$	1,159	$	133	Remainder of 2022	$	834	$	92
2023	2023	1,781		182		2023	1,932		188
2024	2024	414		188		2024	388		194
2025	2025	111		194		2025	124		201
2026	2026	47		195		2026	113		203
Thereafter	Thereafter	275		740		Thereafter	275		815
Total	Total	$	3,787	$	1,632	Total	$	3,666	$	1,693

(a)Includes non-cancelable contractual commitments for aircraft and engines, aircraft maintenance and parts management. ~~Contractual commitments do not reflect the impact of the impending fleet transition.~~ 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. In ~~March~~the second quarter of 2022, ~~Alaska~~Horizon amended its aircraft purchase agreement with ~~Boeing,~~Embraer, adding ~~the 737-8~~8 firm E175 deliveries between 2023 and ~~737-10 models to its existing order book of 737-9 aircraft. The amended agreement also includes~~2026 and 13 options to purchase additional aircraft with deliveries between 2024 and ~~2026.~~ 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. ~~Horizon also has commitments to purchase 12 Embraer E175 aircraft with deliveries between 2022 and 2025.~~ Future minimum contractual payments for these aircraft reflect the expected delivery timing, but are also subject to change.


		Firm Orders	Options	Total		Firm Orders	Options	Total
Aircraft Type	Aircraft Type	2022-2025	2024-2026	2022 - 2026	Aircraft Type	2022-2026	2024-2026	2022 - 2026
Boeing 737-8	Boeing 737-8	10	—	10	Boeing 737-8	10	—	10
Boeing 737-9	Boeing 737-9	51	11	62	Boeing 737-9	44	11	55
Boeing 737-10	Boeing 737-10	6	41	47	Boeing 737-10	6	41	47
Embraer E175	Embraer E175	12	—	12	Embraer E175	20	13	33
Total	Total	79	52	131	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, again without awarding injunctive relief against Alaska. The determination of~~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 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.

The Company is analyzing a range of potential options to balance new compliance obligations with operational and labor considerations. Some or all of

Alaska is seeking a conclusive U.S. Supreme Court ruling that the California laws on which the judgment is based are invalid as applied to airlines pursuant to the U.S. Constitution and provisions of federal law that were enacted 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. If appeal efforts are unsuccessful, compliance with California and other states' lawsthese solutions may have an adverse impact on the ~~Company's~~Company’s operations and financial ~~position.~~

~~Like other U.S. airlines, Alaska~~position due in part to the unresolved conflicts between the laws and ~~Horizon are involved in other litigation around the application of state and local employment laws. Our defenses are similar~~federal regulations applicable 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.airlines.

NOTE 8. SHAREHOLDERS' EQUITY

Common Stock Repurchase

In August 2015, the Board of Directors authorized a $1 billion share repurchase program. The Company 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 the Payroll Support Program (PSP) under the CARES Act, the Company granted the Treasury a total of 1,455,438 warrants to purchase ALK common 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 the Company's option, and have a five-year term.

The value of the warrants was estimated using a Black-Scholes option pricing model. The total fair value of all outstanding warrants was $30 million, recorded in stockholders' equity at issuance.

Total warrants outstanding are as follows as of ~~March 31,~~June 30, 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
Outstanding March 31, 2022		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):, is shown below for the three and six months ended June 30, 2022:

Marketable Securities Employee Benefit Plan Interest Rate Derivatives Total
Balance at December 31, 2021, net of tax effect of $83 $ (4) $ (252) $ (6) $ (262)
Reclassifications into earnings, net of tax impact of $0 2 1 — 3
Change in value, net of tax impact of $10 (42) — 9 (33)
Balance at March 31, 2022, net of tax effect of $93 $ (44) $ (251) $ 3 $ (292)
Balance at December 31, 2020, net of tax effect of $160 $ 23 $ (498) $ (19) $ (494)
Reclassifications into earnings, net of tax impact of $2 (4) 6 — (2)
Change in value, net of tax impact of $(2) (8) — 6 2
Balance at March 31, 2021, net of tax effect of $160 $ 11 $ (492) $ (13) $ (494)


	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, 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 ~~March 31,~~June 30, 2022 and ~~March 31,~~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 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 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 March 31, 2022															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	$	1,243	$	268	$	—	$	—	$	1,511	$	—	$	1,511	Passenger revenues	$	2,028	$	390	$	—	$	—	$	2,418		$	—	$	2,418
CPA revenues	CPA revenues	—		—		94		(94)		—		—		—		CPA revenues	—		—		101		(101)		—			—		—
Mileage Plan other revenue	Mileage Plan other revenue	100		12		—		—		112		—		112		Mileage Plan other revenue	159		16		—		—		175			—		175
Cargo and other	Cargo and other	57		—		—		1		58		—		58		Cargo and other	64		—		—		1		65			—		65
Total Operating Revenues	Total Operating Revenues	1,400		280		94		(93)		1,681		—		1,681		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	1,194		262		99		(94)		1,461		75		1,536		Operating expenses, excluding fuel	1,262		289		98		(100)		1,549			146		1,695
Fuel expense	Fuel expense	381		73		—		—		454		(107)		347		Fuel expense	617		119		—		—		736			40		776
Total Operating Expenses	Total Operating Expenses	1,575		335		99		(94)		1,915		(32)		1,883		Total Operating Expenses	1,879		408		98		(100)		2,285			186		2,471

Non-operating Income (Expense)	Non-operating Income (Expense)	1		—		(5)		—		(4)		—		(4)		Non-operating Income (Expense)	3		—		(5)		—		(2)			—		(2)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(174)	$	(55)	$	(10)	$	1	$	(238)	$	32	$	(206)	Income (Loss) Before Income Tax	$	375	$	(2)	$	(2)	$	—	$	371		$	(186)	$	185
Pretax Margin																Pretax Margin									14.0		%			7.0		%

		Three Months Ended March 31, 2021															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	$	506	$	153	$	—	$	—	$	659	$	—	$	659	Passenger revenues	$	1,072	$	280	$	—	$	—	$	1,352		$	—	$	1,352
CPA revenues	CPA revenues	—		—		104		(104)		—		—		—		CPA revenues	—		—		111		(111)		—			—		—
Mileage Plan other revenue	Mileage Plan other revenue	80		14		—		—		94		—		94		Mileage Plan other revenue	102		16		—		—		118			—		118
Cargo and other	Cargo and other	44		—		—		—		44		—		44		Cargo and other	55		—		—		2		57			—		57
Total Operating Revenues	Total Operating Revenues	630		167		104		(104)		797		—		797		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	893		265		88		(109)		1,137		(382)		755		Operating expenses, excluding fuel	984		286		91		(127)		1,234			(530)		704
Fuel expense	Fuel expense	174		52		—		(1)		225		(22)		203		Fuel expense	253		66		—		1		320			(46)		274
Total Operating Expenses	Total Operating Expenses	1,067		317		88		(110)		1,362		(404)		958		Total Operating Expenses	1,237		352		91		(126)		1,554			(576)		978

Non-operating Income (Expense)	Non-operating Income (Expense)	(7)		—		(5)		—		(12)		—		(12)		Non-operating Income (Expense)	(16)		—		(5)		—		(21)			—		(21)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(444)	$	(150)	$	11	$	6	$	(577)	$	404	$	(173)	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, 2022
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	3,271	$	658	$	—	$	—	$	3,929		$	—	$	3,929
CPA revenues	—		—		195		(195)		—			—		—
Mileage Plan other revenue	259		28		—		—		287			—		287
Cargo and other	121		—		—		2		123			—		123
Total Operating Revenues	3,651		686		195		(193)		4,339			—		4,339
Operating Expenses
Operating expenses, excluding fuel	2,456		551		197		(194)		3,010			221		3,231
Fuel expense	998		192		—		—		1,190			(67)		1,123
Total Operating Expenses	3,454		743		197		(194)		4,200			154		4,354





Non-operating Income (Expense)	4		—		(10)		—		(6)			—		(6)
Income (Loss) Before Income Tax	$	201	$	(57)	$	(12)	$	1	$	133		$	(154)	$	(21)
Pretax Margin									3.1		%			(0.5)		%

	Six Months Ended June 30, 2021
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	1,578	$	433	$	—	$	—	$	2,011		$	—	$	2,011
CPA revenues	—		—		215		(215)		—			—		—
Mileage Plan other revenue	182		30		—		—		212			—		212
Cargo and other	99		—		—		2		101			—		101
Total Operating Revenues	1,859		463		215		(213)		2,324			—		2,324
Operating Expenses
Operating expenses, excluding fuel	1,877		551		179		(236)		2,371			(912)		1,459
Fuel expense	427		118		—		—		545			(68)		477
Total Operating Expenses	2,304		669		179		(236)		2,916			(980)		1,936





Non-operating Income (Expense)	(23)		—		(10)		—		(33)			—		(33)
Income (Loss) Before Income Tax	$	(468)	$	(206)	$	26	$	23	$	(625)		$	980	$	355
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):


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Mainline	Mainline	$	19,684	$	19,258	Mainline	$	20,312	$	19,258
Horizon	Horizon	1,125		1,212		Horizon	1,125		1,212
Consolidating & Other	Consolidating & Other	(6,599)		(6,519)		Consolidating & Other	(6,637)		(6,519)
Consolidated	Consolidated	$	14,210	$	13,951	Consolidated	$	14,800	$	13,951

2021


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, 2021. This overview summarizes the MD&A, which includes the following sections:

•~~First~~Second Quarter Review—highlights from the ~~first~~second quarter of 2022 outlining some of the major events that 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 ~~March 31,~~June 30, 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 2022.

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

~~FIRST~~SECOND QUARTER REVIEW

Business Recovery and ~~First~~Second Quarter Results

We recorded a consolidated pretax ~~loss~~income for the ~~first~~second quarter of 2022 under GAAP of ~~$206~~$185 million, compared to aconsolidated pretax ~~loss~~income of ~~$173~~$528 million in the ~~first~~second quarter of 2021. On an adjusted basis, we reported ~~a net loss~~consolidated pretax income for the quarter of ~~$167~~$371 million, compared to ~~an adjusted net~~consolidated pretax loss of ~~$436~~$48 million in the same period of 2021. WeOur airlines faced ~~headwinds~~challenges early in ~~January~~the second quarter as we ramped staffing to meet historic levels of demand. By June, we stabilized the operation and ~~February, with weaker demand~~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 ~~staffing challenges as a result of an outbreak~~record load factors for each month of the ~~omicron variant of COVID-19. As cases subsided and business and leisure demand rebounded, monthly operating revenues surpassed 2019 levels in the month of March, a first since the pandemic began.~~quarter, as well as strong revenue growth from our Mileage Plan program.

As we ramp ~~our operation~~capacity back to ~~flying~~ 2019 ~~capacity~~ levels, we have ~~seen~~experienced increases to ~~our~~ non-fuel operating expenses. Costs have also been impacted by inflationary pressures and supply chain constraints. Non-fuel operating expense, excluding special items, rose ~~28%~~26% over the prior year period, ~~primarily~~ driven by a combination of increased departure-related costs on ~~33%~~16% more capacity ~~flown. Increased capacity, coupled with~~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 ~~24%~~benefit of $88 million for the quarter, total fuel cost exceeded 2021 levels due primarily to a 98% increase in ~~fuel cost~~economic price per ~~gallon, drove additional fuel expense of $144 million as compared to 2021.~~gallon. We also incurred special charges of ~~$75~~$146 million in the ~~first~~second quarter of 2022 related to our fleet transition, compared to a special benefit of ~~$382~~$503 million recorded in the second quarter of 2021 primarily from Payroll Support Program grant wage 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. In the first quarter of 2022, we launched the Ascend Pilot Academy, in partnership with the Hillsboro Aero Academy, which will provide aspiring pilots a simpler and more financially accessible path to become a pilot at Horizon. This academy will help make careers in aviation possible for a broader and more diverse population of future pilots.

As a reflection of ~~the importance of the commitments made,~~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~~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 ~~and Strategic Updates~~

~~As we look to~~For the ~~second~~third quarter and remainder of the year, we ~~have turned focus~~remain committed to best positioning our ~~strategy~~airlines for long-term sustainable growth. InWe have moderated our capacity plans for the first quarter, we announced plans to accelerate our transition to a single fleet at Alaska, and revealed new plans to transition our regional operations to a single fleet by retiring our Q400 fleet by the end of 2023. Moving to single fleet at Alaska and Horizon strengthens our low cost, high productivity competitive advantage, and contributes to greater operational excellence. As partremainder of the ~~transition, we are also strategically upgauging~~year to stabilize our operation, improve our training throughput and execute on our fleet astransition plans. As a result, we ~~backfill retired aircraft, supporting efficient growth~~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 ~~bringing with it more premium revenue opportunity.~~

~~In the first~~training costs, has shifted our expectation for third quarter ~~we announced a renewed co-brand credit card agreement with Bank of America extending~~CASMex to ~~2030. Throughout the pandemic, our loyalty program provided meaningful cash flow~~be up 16% to our business, and has continued to grow in line with returning demand. The new agreement is expected to generate incremental cash flows from improved economics, while providing our guests with expanded benefits.

To support our growth plans, we are focused on staffing our airlines and delivering the operational excellence for which we are known. We faced challenges in the first quarter as the omicron variant caused disruptions in our pilot training throughput, which led to a shortage of pilots as we entered the second quarter. In response, management has moderated second quarter capacity plans to maintain operational integrity, and now plans to fly capacity that is 6% to 9% below 2019 levels. Despite the drawdown in capacity, relative19% over 2019. Continued strength in the demand environment is expected to ~~lift second quarter revenues~~generate revenue 16% to 5%19% over 2019 levels. For the full year, we continue to ~~8% above 2019 levels.~~anticipate adjusted pretax margins will range between 6% and 9%.

~~The guidance we~~Although our operations have ~~provided~~stabilized, ongoing industry-wide labor shortages and supply chain delays could have a material impact on our ~~outlook more broadly are sensitive to health trends, as well as regulations and restrictions imposed by state, local and federal authorities.~~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 ~~continue to focus~~are focused on keeping costs low and running a strong ~~operation, and building brand love as we go.~~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 ~~offsets~~offset and other special items is useful information to investors because:

•By excluding fuel expense and certain other items, ~~(including~~such as the Payroll Support Program grant wage offset and other special ~~items)~~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 other items, such as the Payroll Support Program grant wage offset and other special items, is one of the most important measures used by management and by our Board of Directors in assessing quarterly and annual cost performance.

•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 ~~cash~~ 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.

2324

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 March 31,			Three Months Ended June 30,			Six Months Ended June 30,
		2022	2021	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)	8,694	4,666	86.3%		Revenue passengers (000)	11,005	8,712	26.3%	19,700	13,379	47.2%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	10,586	5,393	96.3%		RPMs (000,000) "traffic"	13,746	10,334	33.0%	24,332	15,727	54.7%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	13,783	10,397	32.6%		ASMs (000,000) "capacity"	15,611	13,413	16.4%	29,394	23,810	23.5%
Load factor	Load factor	76.8%	51.9%	24.9 pts		Load factor	88.1%	77.0%	11.1 pts	82.8%	66.1%	16.7 pts
Yield	Yield	14.27¢	12.22¢	16.8%		Yield	17.59¢	13.09¢	34.4%	16.15¢	12.79¢	26.3%
RASM	RASM	12.20¢	7.67¢	59.1%		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)	10.61¢	10.93¢	(2.9)%		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)	$2.62	$1.79	46.4%		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)	173	126	37.3%		Fuel gallons (000,000)	196	168	16.7%	368	294	25.2%
ASMs per fuel gallon	ASMs per fuel gallon	79.9	82.4	(3.0)%		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)	21,582	17,140	25.9%		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)	6,566	3,151	108.4%		Revenue passengers (000)	8,321	6,151	35.3%	14,887	9,302	60.0%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	9,512	4,589	107.3%		RPMs (000,000) "traffic"	12,460	8,966	39.0%	21,972	13,555	62.1%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	12,387	8,853	39.9%		ASMs (000,000) "capacity"	14,052	11,611	21.0%	26,439	20,464	29.2%
Load factor	Load factor	76.8%	51.8%	25.0 pts		Load factor	88.7%	77.2%	11.5 pts	83.1%	66.2%	16.9 pts
Yield	Yield	13.06¢	11.02¢	18.5%		Yield	16.28¢	11.96¢	36.1%	14.89¢	11.64¢	27.9%
RASM	RASM	11.30¢	7.11¢	58.9%		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)	9.64¢	10.08¢	(4.4)%		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)	$2.61	$1.77	47.5%		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)	146	98	49.0%		Fuel gallons (000,000)	165	135	22.2%	311	233	33.5%
ASMs per fuel gallon	ASMs per fuel gallon	85.0	90.3	(5.9)%		ASMs per fuel gallon	85.2	86.0	(0.9)%	85.0	87.8	(3.2)%
Average FTEs	Average FTEs	16,336	12,473	31.0%		Average FTEs	17,315	14,021	23.5%	16,825	13,247	27.0%
Aircraft utilization	Aircraft utilization	9.5	8.5	11.8%		Aircraft utilization	10.1	9.9	2.0%	9.8	9.2	6.5%
Average aircraft stage length	Average aircraft stage length	1,334	1,303	2.4%		Average aircraft stage length	1,363	1,320	3.3%	1,349	1,313	2.7%
Operating fleet(d)	Operating fleet(d)	225	201	24 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)	2,128	1,515	40.5%		Revenue passengers (000)	2,685	2,562	4.8%	4,813	4,077	18.1%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	1,075	804	33.7%		RPMs (000,000) "traffic"	1,285	1,367	(6.0)%	2,360	2,172	8.7%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	1,396	1,544	(9.6)%		ASMs (000,000) "capacity"	1,559	1,802	(13.5)%	2,955	3,346	(11.7)%
Load factor	Load factor	77.0%	52.1%	24.9 pts		Load factor	82.4%	75.9%	6.5 pts	79.9%	64.9%	15.0 pts
Yield	Yield	24.96¢	19.04¢	31.1%		Yield	30.35¢	20.48¢	48.2%	27.88¢	19.95¢	39.7%
RASM	RASM	20.04¢	10.84¢	84.9%		RASM	26.04¢	16.41¢	58.7%	23.21¢	13.84¢	67.7%
Operating fleet(d)	Operating fleet(d)	98	94	4 a/c		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.

2425

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 2022 to 2019.


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

		Three Months Ended March 31,							Three Months Ended June 30,				Six Months Ended June 30,
		2022		2019		Change					2022		2019		Change	2022		2019		Change
Passenger revenue	Passenger revenue	$	1,511	$	1,716	(12)	%			Passenger revenue	$	2,418	$	2,111	15%	$	3,929	$	3,827	3%
Mileage plan other revenue	Mileage plan other revenue	112		110		2	%			Mileage plan other revenue	175		118		48%	287		228		26%
Cargo and other	Cargo and other	58		50		16	%			Cargo and other	65		59		10%	123		109		13%
Total operating revenues		$	1,681	$	1,876	(10)	%
Total operating revenue										Total operating revenue	$	2,658	$	2,288	16%	$	4,339	$	4,164	4%

Operating expense, excluding fuel and special items	Operating expense, excluding fuel and special items	$	1461	$	1,405	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	Aircraft fuel, including hedging gains and losses	347		420		(17)	%			Aircraft fuel, including hedging gains and losses	776		502		55%	1,123		922		22%
Special items	Special items	75		26		NM				Special items	146		8		NM	221		34		NM
Total operating expenses	Total operating expenses	$	1,883	$	1,851	2	%			Total operating expenses	$	2,471	$	1,924	28%	$	4,354	$	3,775	15%

Total non-operating expense	Total non-operating expense	(4)		(19)		(79)	%			Total non-operating expense	(2)		(13)		(85)%	(6)		(32)		(81)%
Income (loss) before income tax	Income (loss) before income tax	$	(206)	$	6	NM				Income (loss) before income tax	$	185	$	351	(47)%	$	(21)	$	357	(106)%

Consolidated Operating Statistics:	Consolidated Operating Statistics:									Consolidated Operating Statistics:
Revenue passengers (000)	Revenue passengers (000)	8,694		10,417		(17)	%			Revenue passengers (000)	11,005		12,026		(8)%	19,700		22,442		(12)%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	10,586		12,449		(15)	%			RPMs (000,000) "traffic"	13,746		14,638		(6)%	24,332		27,087		(10)%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	13,783		15,508		(11)	%			ASMs (000,000) "capacity"	15,611		16,980		(8)%	29,394		32,487		(10)%
Load Factor	Load Factor	76.8%		80.3%		(3.5)	pts			Load Factor	88.1%		86.2%		1.9 pts	82.8%		83.4%		(0.6) pts
Yield	Yield	14.27¢		13.78¢		4	%			Yield	17.59¢		14.43¢		22%	16.15¢		14.13¢		14%
RASM	RASM	12.20¢		12.10¢		1	%			RASM	17.03¢		13.48¢		26%	14.76¢		12.82¢		15%
CASMex	CASMex	10.61¢		9.06¢		17	%			CASMex	9.92¢		8.33¢		19%	10.24¢		8.68¢		18%
FTEs	FTEs	21,582		21,832		(1)	%			FTEs	22,603		21,921		3%	22,092		21,876		1%

2526

COMPARISON OF THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2022 TO THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2021

Our consolidated net ~~loss~~income for the three months ended ~~March 31,~~June 30, 2022 was ~~$143~~$139 million, or ~~$1.14~~$1.09 per share, compared to a consolidated net ~~loss~~income of ~~$131~~$397 million, or ~~$1.05~~$3.13 per share, for the three months ended ~~March 31,~~June 30, 2021.

Excluding the impact of special items and mark-to-market fuel hedge adjustments, our adjusted net ~~loss~~income for the ~~first~~second quarter of 2022 was ~~$167~~$280 million, or ~~$1.33~~$2.19 per share, compared to an adjusted net loss of ~~$436~~$38 million, or ~~$3.51~~$0.30 per share, in the ~~first~~second quarter of 2021. The following table reconciles our adjusted net ~~loss~~income per share (EPS) to amounts as reported in accordance with GAAP:


		Three Months Ended March 31,									Three Months Ended June 30,
		2022				2021					2022				2021
(in millions, except per share amounts)	(in millions, except per share amounts)	Dollars		EPS		Dollars		EPS		(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net loss per share		$	(143)	$	(1.14)	$	(131)	$	(1.05)
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	—		—		(411)		(3.31)		Payroll Support Program grant wage offset	—		—		(503)		(3.97)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(107)		(0.85)		(22)		(0.18)		Mark-to-market fuel hedge adjustments	40		0.31		(46)		(0.36)
Special items - fleet transition and related charges	Special items - fleet transition and related charges	75		0.60		18		0.14		Special items - fleet transition and related charges	146		1.14		(4)		(0.03)
Special items - restructuring charges	Special items - restructuring charges	—		—		11		0.09		Special items - restructuring charges	—		—		(23)		(0.18)

Income tax effect of reconciling items above	Income tax effect of reconciling items above	8		0.06		99		0.80		Income tax effect of reconciling items above	(45)		(0.35)		141		1.11
Non-GAAP adjusted net loss per share		$	(167)	$	(1.33)	$	(436)	$	(3.51)
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 March 31,							Three Months Ended June 30,
(in cents)	(in cents)	2022		2021		% Change		(in cents)	2022		2021		% Change
Consolidated:	Consolidated:							Consolidated:
CASM	CASM	13.66	¢	9.21	¢	48	%	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	—		(3.95)		NM		Payroll Support Program grant wage offset	—		(3.75)		NM
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	2.51		1.95		29	%	Aircraft fuel, including hedging gains and losses	4.98		2.04		144	%
Special items - fleet transition and related charges	Special items - fleet transition and related charges	0.54		0.17		NM		Special items - fleet transition and related charges	0.94		(0.03)		NM
Special items - restructuring charges	Special items - restructuring charges	—		0.11		NM		Special items - restructuring charges	—		(0.17)		NM

CASM excluding fuel and special items	CASM excluding fuel and special items	10.61	¢	10.93	¢	(3)	%	CASM excluding fuel and special items	9.92	¢	9.20	¢	8	%

Mainline:	Mainline:							Mainline:
CASM	CASM	11.89	¢	8.07	¢	47	%	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	—		(4.06)		NM		Payroll Support Program grant wage offset	—		(3.79)		NM
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	2.21		1.72		29	%	Aircraft fuel, including hedging gains and losses	5.06		1.78		184	%

Special items - fleet transition and related charges	Special items - fleet transition and related charges	0.04		0.20		(80)	%	Special items - fleet transition and related charges	1.02		(0.03)		NM
Special items - restructuring charges	Special items - restructuring charges	—		0.13		NM		Special items - restructuring charges	—		(0.20)		NM

CASM excluding fuel and special items	CASM excluding fuel and special items	9.64	¢	10.08	¢	(4)	%	CASM excluding fuel and special items	8.98	¢	8.48	¢	6	%

2627

OPERATING ~~REVENUES~~REVENUE

Total operating ~~revenues~~revenue increased ~~$884 million,~~$1.1 billion, or ~~111%~~74%, during the ~~first~~second quarter of 2022 compared to the same period in 2021. The changes are summarized in the following table:


		Three Months Ended March 31,							Three Months Ended June 30,
(in millions)	(in millions)	2022		2021		% Change		(in millions)	2022		2021		% Change
Passenger revenue	Passenger revenue	$	1,511	$	659	129	%	Passenger revenue	$	2,418	$	1,352	79	%
Mileage Plan other revenue	Mileage Plan other revenue	112		94		19	%	Mileage Plan other revenue	175		118		48	%
Cargo and other	Cargo and other	58		44		32	%	Cargo and other	65		57		14	%
Total operating revenues		$	1,681	$	797	111	%
Total operating revenue								Total operating revenue	$	2,658	$	1,527	74	%

Passenger ~~Revenue~~revenue

On a consolidated basis, Passenger revenue for the ~~first~~second quarter of 2022 increased by ~~$852 million,~~$1.1 billion, or ~~129%~~79%, ~~primarily~~ driven by a ~~significant~~33% increase in passenger traffic and ~~bolstered by~~ a ~~17%~~34% improvement in ticket yields. ~~January~~Record setting demand for air travel and ~~February 2022 results were negatively impacted by~~constrained capacity industry wide enabled record load factors in each month of the ~~omicron variant; however, surging demand in March by both business~~second quarter of 2022. Higher revenue on improved Mileage Plan award redemptions and ~~leisure travelers drove meaningful improvements~~from our alliance partners following the relaxing of international travel restrictions also contributed meaningfully to ~~year-over-year results.~~

~~We expect~~revenue growth as compared to ~~see continued growth to Passenger revenue as we progress through 2022 driven by high demand and increased capacity.~~2021.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue for the second quarter of 2022 increased by ~~$18~~$57 million, or ~~19%, 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 ~~agreement and increased consumer spending and new card acquisitions.~~

~~We expect to see increases to~~agreement. Second quarter Mileage Plan other revenue includes a one-time $20 million adjustment recorded as a result of finalizing accounting conclusions for the ~~remainder of 2022, driven by higher commissions from the~~ new ~~co-branded credit card~~ agreement.

Cargo and other

On a consolidated basis, Cargo and other revenue for the ~~first~~second quarter of 2022 increased by ~~$14~~$8 million, or ~~32%, as compared to~~14%. Other ancillary revenue was the ~~same prior-year period as our dedicated freighters were running below full capacity in~~primary driver of the ~~first quarter of 2021. Additional departures also provided incremental belly cargo activity in the first quarter of 2022 compared~~year-over-year increase, consistent with the ~~prior year.~~

~~We expect~~return in demand for travel. Incremental freight revenue also contributed, due to ~~see increases to cargo and other revenue for the remainder~~greater use of ~~2022, driven by increased~~ belly ~~cargo activity as we~~capacity which grew on an increase in scheduled departures.

OPERATING EXPENSES

Total operating expenses increased ~~$925 million,~~$1.5 billion, or ~~97%~~153%, compared to the ~~first~~second quarter of 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 March 31,							Three Months Ended June 30,
(in millions)	(in millions)	2022		2021		% Change		(in millions)	2022		2021		% Change
Fuel expense	Fuel expense	$	347	$	203	71	%	Fuel expense	$	776	$	274	183	%
Non-fuel operating expenses, excluding special items	Non-fuel operating expenses, excluding special items	1,461		1,137		28	%	Non-fuel operating expenses, excluding special items	1,549		1,234		26	%
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	—		(411)		NM		Payroll Support Program grant wage offset	—		(503)		NM
Special items - fleet transition and related charges	Special items - fleet transition and related charges	75		18		NM		Special items - fleet transition and related charges	146		(4)		NM
Special items - restructuring charges	Special items - restructuring charges	—		11		NM		Special items - restructuring charges	—		(23)		NM

Total operating expenses	Total operating expenses	$	1,883	$	958	97	%	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 ~~$144~~$502 million, or ~~71%~~183%, compared to the ~~first~~second quarter of 2021. The elements of the change are illustrated in the following table:


		Three Months Ended March 31,									Three Months Ended June 30,
		2022				2021					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	$	504	$	2.91	$	222	$	1.77	Raw or "into-plane" fuel cost	$	824	$	4.20	$	330	$	1.96
(Gain)/loss on settled hedges	(Gain)/loss on settled hedges	(50)		(0.29)		3		0.02		(Gain)/loss on settled hedges	(88)		(0.44)		(10)		(0.06)
Consolidated economic fuel expense	Consolidated economic fuel expense	$	454	$	2.62	$	225	$	1.79	Consolidated economic fuel expense	$	736	$	3.76	$	320	$	1.90
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(107)		(0.62)		(22)		(0.18)		Mark-to-market fuel hedge adjustments	40		0.20		(46)		(0.27)
GAAP fuel expense	GAAP fuel expense	$	347	$	2.00	$	203	$	1.61	GAAP fuel expense	$	776	$	3.96	$	274	$	1.63
Fuel gallons	Fuel gallons			173				126		Fuel gallons			196				168

Raw fuel expense increased ~~127%~~150% in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021, due to ~~a combination of increased fuel consumption and~~significantly higher per gallon ~~costs. Fuel consumption~~costs and increased ~~by 47 million gallons, consistent with an increase in departures.~~fuel consumption. Raw fuel expense per gallon increased by approximately ~~64%~~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 first quarter of 2022 was primarily driven by a 64% increase in crude~~Crude oil prices ~~when~~have risen 62% while refining margins have risen exponentially compared to ~~the prior year.~~2021. Fuel gallons consumed increased 17%, consistent with 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. 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 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 ~~first~~second quarter were ~~$50~~$88 million in 2022, compared to ~~losses~~gains of $3$10 million in the same period in 2021. These amounts represent cash received from hedges at settlement, offset by cash paid in prior periods for premium expense.

Non-fuel 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 2021 are more fully described below.


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

Wages and benefits

Wages and benefits increased by $129 million, or 25%, in the second quarter of 2022. The primary components of Wages and benefits are shown in the following table:


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

Wages increased $100 million, or 26%, primarily driven by 19% growth in FTEs as Alaska and Horizon hire to support the ramp up in operations, as well as higher wage rates. Increased expense for defined contribution plans, payroll taxes, and medical and other benefits are consistent with the change in wages.

Variable incentive pay

Variable incentive pay expense increased by $22 million, or 65%, in the second quarter of 2022. The increase is primarily due to the expectation that higher payouts will be achieved under the 2022 Performance Based Pay Plan.

Aircraft rent

Aircraft rent expense increased by $11 million, or 18%, in the second quarter of 2022. Increased expense is due to the delivery of eight leased Boeing 737-9 aircraft and ten leased E175 aircraft operated by SkyWest since June 30, 2021.

Landing fees and other rentals

Landing fees and other rentals decreased by $8 million, or 6%, in the second quarter of 2022. The decrease compared to the same period in 2021 is due to favorable resolution for certain pandemic period airport accruals, coupled with decreased airport rates as compared to the prior year.

Contracted services

Contracted services increased by $28 million, or 52%, in the second quarter of 2022, driven primarily by increased departures and passengers, coupled with higher rates charged by vendor partners.

Selling expense

Selling expense increased by $37 million, or 90%, in the second quarter of 2022, driven primarily by 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 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.

Other expense

Other expense increased $60 million, or 51%, in the second quarter 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 - fleet transition and related charges

We recorded non-recurring expenses associated with fleet transition and related charges of $146 million in the second quarter of 2022. Refer to Note 2 to the consolidated financial statements for additional details.

ADDITIONAL SEGMENT INFORMATION

Refer to Note 9 to the 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 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. The $399 million improvement was primarily driven by a $956 million increase in Passenger revenue, offset by a $364 million increase in economic fuel cost and a $278 million increase in non-fuel operating costs.

As compared to the prior year, higher Mainline revenue is primarily attributable to a 39% increase in traffic and a 36% increase in yield, driven by a historically strong demand environment. Non-fuel operating expenses increased, driven by higher variable costs, largely consistent with the overall growth in capacity and departures. Higher fuel prices, combined with more gallons consumed, drove the increase in Mainline fuel expense.

Regional

Regional operations 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. Improved results were attributable to a $110 million increase in operating revenue, partially offset by a $53 million increase in fuel costs.

Regional passenger revenue increased significantly compared to the second quarter of 2021, primarily driven by an improved load factor and a 48% improvement in yield. Higher fuel prices contributed to the increase in Regional fuel expense.

Horizon

Horizon 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. The shift to adjusted pretax loss is driven by lower CPA revenue on decreased departures, combined with incremental maintenance expense on E175 aircraft and higher wage and benefit costs on incremental FTEs.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2022 TO SIX MONTHS ENDED JUNE 30, 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, 2022 was $113 million, or $0.89 per share, compared to an adjusted net loss of $474 million, or $3.75 per share, in the six months ended June 30, 2021. The following table reconciles our adjusted net income and adjusted EPS to amounts as reported in accordance with GAAP:


	Six Months Ended June 30,
	2022				2021
(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income (loss) per share	$	(4)	$	(0.03)	$	266	$	2.10
Payroll Support Program grant wage offset	—		—		(914)		(7.23)
Mark-to-market fuel hedge adjustments	(67)		(0.53)		(68)		(0.54)

Special items - impairment charges and other	221		1.75		14		0.11
Special items - restructuring charges	—		—		(12)		(0.09)
Income tax effect of reconciling items above	(37)		(0.30)		240		1.90
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	%

OPERATING REVENUE

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


	Six Months Ended June 30,
(in millions)	2022		2021		% Change
Passenger revenue	$	3,929	$	2,011	95	%
Mileage Plan other revenue	287		212		35	%
Cargo and other	123		101		22	%
Total operating revenue	$	4,339	$	2,324	87	%

Passenger revenue

On a consolidated basis, Passenger revenue for the first six months of 2022 increased by $1.9 billion, or 95%, on a 55% increase in passenger traffic 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 continues to drive meaningful improvements to revenue results.

We expect Passenger revenue to continue to grow compared to 2021 results as we 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 alliance partners as global travel restrictions have eased.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue increased $75 million, or 35%, in the first six months of 2022. 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 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 $22 million, or 22%, in the first six months of 2022. Other ancillary revenue was the primary driver of the year-over-year increase, consistent with the return in demand for travel. Incremental freight revenue also contributed, due to greater use of belly capacity which grew on an increase in scheduled departures.

We expect Cargo and other revenue continue to increase compared to 2021 driven by greater ancillary revenue and growth in our cargo business.

OPERATING EXPENSES

Total operating expenses increased $2.4 billion, or 125%, compared to the first six months of 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,
(in millions)	2022		2021		% Change
Fuel expense	$	1,123	$	477	135	%
Non-fuel operating expenses, excluding special items	3,010		2,371		27	%
Payroll Support Program grant wage offset	—		(914)		NM
Special items - impairment charges and other	221		14		NM
Special items - restructuring charges	—		(12)		NM

Total operating expenses	$	4,354	$	1,936	125	%

Fuel expense

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


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

Raw fuel 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 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 and refining margins associated with the conversion of crude oil to jet fuel. 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 expense adjusted for the cash we receive from 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. 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 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 2022 were $138 million, compared to gains of $7 million in the same period in 2021. These amounts represent cash received from settled hedges, offset by cash paid in prior periods for premium expense.

We expect ~~to see~~ 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 ~~second~~third quarter to range between ~~$3.20~~$3.79 and ~~$3.25~~$3.89 per gallon. Based on 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 cost per barrel.

Non-fuel ~~Expenses~~expenses


		Three Months Ended March 31,							Six Months Ended June 30,
(in millions)	(in millions)	2022		2021		% Change		(in millions)	2022		2021		% Change
Wages and benefits	Wages and benefits	$	606	$	493	23	%	Wages and benefits	$	1,245	$	1,003	24	%
Variable incentive pay	Variable incentive pay	36		33		9	%	Variable incentive pay	92		67		37	%
Aircraft maintenance	Aircraft maintenance	135		81		67	%	Aircraft maintenance	239		183		31	%
Aircraft rent	Aircraft rent	73		62		18	%	Aircraft rent	146		124		18	%
Landing fees and other rentals	Landing fees and other rentals	138		129		7	%	Landing fees and other rentals	274		273		—	%
Contracted services	Contracted services	78		51		53	%	Contracted services	160		105		52	%
Selling expenses	Selling expenses	58		33		76	%	Selling expenses	136		74		84	%
Depreciation and amortization	Depreciation and amortization	102		97		5	%	Depreciation and amortization	206		195		6	%
Food and beverage service	Food and beverage service	41		23		78	%	Food and beverage service	91		58		57	%
Third-party regional carrier expense	Third-party regional carrier expense	42		30		40	%	Third-party regional carrier expense	92		67		37	%
Other	Other	152		105		45	%	Other	329		222		48	%
Total non-fuel operating expenses, excluding special items	Total non-fuel operating expenses, excluding special items	$	1,461	$	1,137	28	%	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 scheduled departures, and hire additional employees at higher wage rates to staff our operation.

Wages and ~~Benefits~~benefits

Wages and benefits increased ~~during~~by $242 million, or 24%, in the first ~~quarter~~six months of ~~2022 by $113 million, or 23%, compared to 2021.~~2022. The primary components of ~~Wages~~wages and benefits are shown in the following table:


		Three Months Ended March 31,							Six Months Ended June 30,
(in millions)	(in millions)	2022		2021		% Change		(in millions)	2022		2021		% Change
Wages	Wages	$	467	$	357	31	%	Wages	$	953	$	743	28	%
Pension - Defined benefit plans service cost	Pension - Defined benefit plans service cost	11		13		(15)	%	Pension - Defined benefit plans service cost	23		26		(12)	%
Defined contribution plans	Defined contribution plans	38		32		19	%	Defined contribution plans	77		58		33	%
Medical and other benefits	Medical and other benefits	56		65		(14)	%	Medical and other benefits	122		124		(2)	%
Payroll taxes	Payroll taxes	34		26		31	%	Payroll taxes	70		52		35	%
Total wages and benefits	Total wages and benefits	$	606	$	493	23	%	Total wages and benefits	$	1,245	$	1,003	24	%

Wages increased ~~$110~~$210 million, or ~~31%~~28%, ~~on a 26% increase~~ in ~~FTEs. Increased wages as compared to~~ the ~~prior period are~~first six months of 2022, primarily ~~the result of the increase~~driven by 22% growth in FTEs as Alaska and Horizon ~~continue their recovery from~~hire to support the ~~pandemic and~~ ramp up ~~operations.~~in operations, as well as higher wage rates. Increased expense for defined contribution plans and payroll taxes are ~~in line~~consistent with the ~~related increase to~~change in wages.

~~Medical and other benefits decreased as compared~~Variable incentive pay

Variable incentive pay expense increased $25 million, or 37%, in the first six months of 2022. The increase is primarily due to ~~2021 as a result of an adjustment to prior-period reserves and structural changes to benefit programs.~~the expectation that higher payouts will be achieved under the 2022 Performance Based Pay Plan.

Aircraft ~~Maintenance~~maintenance

Aircraft maintenance expense increased ~~$54~~by $56 million, or ~~67%~~31%, ~~compared to~~in the first ~~quarter~~six months of ~~2021.~~2022. Higher maintenance expense is the result of charges recorded for maintenance work to return leased aircraft recorded in the first quarter of 2022 and increased power-by-the-hour charges on covered aircraft, including a new contract for our regional fleet.

Aircraft ~~Rent~~rent

Aircraft rent expense increased by ~~$11~~$22 million, or 18%, ~~during~~in the first ~~quarter~~six months of ~~2022 compared~~2022. Increased expense is due to the ~~same period in 2021 primarily as a result~~delivery of eight leased Boeing 737-9 ~~deliveries in the second half of 2021~~aircraft and ~~first quarter of 2022.~~

ten leased E175 aircraft operated by SkyWest since June 30, 2021.

2935

We expect aircraft rent to increase in 2022 on the annualization of expense and additional deliveries of leased 737-9 aircraft and incremental aircraft flown by SkyWest under our long-term capacity purchase agreement.

Landing ~~Fees~~fees and ~~Other Rentals~~other rentals

Landing fees and other rentals ~~increased by $9 million, or 7%, during~~in the first ~~quarter~~six months of ~~2022. The increase~~2022 were flat as compared to the same period in 2021, ~~is due to~~despite an increase in departures and passengers. Flat expense is due to favorable resolution for certain pandemic period airport accruals, coupled with a reduction in airport rates as ~~demand~~traffic returns ~~partially offset by decreases in rates at some of the airports we service.~~fees per landing are reduced from 2021 levels.

Contracted ~~Services~~services

Contracted services increased by ~~$27~~$55 million, or ~~53%~~52%, ~~during~~in the first ~~quarter~~six months of 2022, ~~compared to the same period in 2021~~ driven primarily by increased departures and passengers in line with increased demand, coupled with increased rates charged by vendor partners.

Selling ~~Expense~~expense

Selling expense increased by ~~$25~~$62 million, or ~~76%~~84%, ~~during~~in the first ~~quarter~~six months of 2022, ~~compared to the same period in 2021,~~ primarily driven by an increase in distribution costs and credit card commissions incurred with the overall revenue recovery.

Food and ~~Beverage Service~~beverage service

Food and beverage service increased by ~~$18~~$33 million, or ~~78%~~57%, ~~during~~in the first ~~quarter~~six months of ~~2022 compared to the same period in 2021. This increase is~~2022. Incremental food and beverage charges are in line with the ~~86%~~47% increase in revenue passengers as well as 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 ~~expenses associated with~~payments made to SkyWest under our CPA, increased ~~by $12~~$25 million, or ~~40%~~37%, ~~during~~in the first ~~quarter~~six months of ~~2022 compared to the same period in 2021.~~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. ~~In addition, a benefit was recorded in 2021 associated with the pass through of CARES Act PSP funding that reduced expense, which did not recur in 2022.~~

We expect third-party regional carrier expense to grow in 2022 as compared to 2021 as we ~~bring~~operate incremental E175 aircraft into the CPA with SkyWest through the year.

Other ~~Expense~~expense

Other expense increased ~~$47~~$107 million, or ~~45%~~48%, ~~during~~in the first ~~quarter~~six months of ~~2022 compared to~~2022. Training events, including travel costs, were a significant driver of the ~~same period in 2021. 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.~~capacity, also contributed to the year-over-year increase.

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

We recorded non-recurring ~~expense~~expenses associated with fleet transition and related charges of ~~$75~~$221 million in the first ~~quarter~~six months of 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 returns. Refer to Note 2 to the ~~condensed~~ consolidated financial statements for 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 ~~recorded~~reported an adjusted pretax ~~loss~~profit of ~~$174~~$201 million in the first ~~quarter~~six months of 2022, compared to an adjusted pretax loss of ~~$444~~$468 million in the ~~first quarter of~~same period in 2021. The ~~$270~~$669 million improvement was ~~primarily~~ driven by a ~~$737~~$1.8 billion increase in Mainline operating revenue offset by a $571 million increase in ~~Passenger revenues as~~Mainline fuel expense and a ~~result of increased demand for air travel, offset by a $301~~$579 million increase in Mainline non-fuel operating ~~costs and a $207 million increase in economic fuel cost.~~expense.

3036

As compared to the prior year, higher Mainline revenue are primarily attributable to a 62% increase in traffic and a 28% increase in yield, driven by the significant increase in demand. Non-fuel operating expenses increased, ~~significantly,~~ driven by ~~increased~~higher variable costs, largely consistent with the overall ~~increase~~growth in capacity and departures. Higher ~~economic~~ fuel prices, combined with ~~more~~additional gallons consumed, drove the increase in Mainline fuel expense.

Regional

Regional operations ~~recorded~~reported an adjusted pretax loss of ~~$55~~$57 million in the first ~~quarter~~six months of 2022, compared to an adjusted pretax loss of ~~$150~~$206 million in the first ~~quarter~~six months of 2021. Improved results were attributable to a ~~$113~~$223 million increase in operating ~~revenues,~~revenue which was the result of higher demand and yields, partially offset by a ~~$21~~$74 million increase in fuel ~~costs.~~

~~Regional passenger revenues increased significantly compared to the first quarter of 2021, primarily driven by increased load factors and a 31% improvement in yield.~~

~~Higher economic~~costs on higher fuel ~~prices, combined with a significant increase in gallons consumed, drove the increase in Regional fuel expense.~~prices.

Horizon

Horizon ~~recorded~~reported an adjusted pretax loss of ~~$10~~$12 million in the first ~~quarter~~six months of 2022, compared to an adjusted pretax ~~income~~profit of ~~$11~~$26 million in the ~~first quarter of~~same period in 2021. The shift to adjusted pretax loss is driven by lower CPA revenue on decreased departures, combined with incremental maintenance expense on E175 aircraft and higher wage and benefit costs on incremental FTEs.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are:

•Existing cash and marketable securities balance of ~~$2.9~~$3.4 billion, and cash flows from operations;

•5863 unencumbered aircraft that could be financed, if necessary;

•Combined bank line-of-credit facilities, with no outstanding borrowings, of $400 million.

During the three months ended ~~March 31,~~June 30, 2022, we took free and clear delivery of seven Boeing 737-9 aircraft. We also made debt payments totaling ~~$170~~$69 million, ending the quarter with a debt-to-capitalization ratio of 50%, within our ~~stated~~ target range of 40% to 50%. ~~Subsequent to~~During the second quarter, ~~end,~~ we received ~~$184~~$260 million in federal income tax ~~refund~~refunds as a result of ~~carrying~~filing amended returns to utilize carry back losses from the 2020 tax year.

As ~~the~~our business returns to sustained profitability, reducing outstanding debt, normalizing our on-hand liquidity, and ~~reinforcing our~~maintaining a strong balance sheet remain high priorities. Our capital expenditures for 2022 are expected to be approximately $1.6 ~~billion to $1.7~~ billion, which we plan to fund with cash generated by operating activities and cash on hand.

We believe that our current cash and marketable securities balance, combined with available sources of liquidity, will be sufficient to fund our operations, meet our debt payment obligations, and 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.

3137

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


(in millions)	(in millions)	March 31, 2022			December 31, 2021			Change	(in millions)	June 30, 2022			December 31, 2021			Change
Cash and marketable securities	Cash and marketable securities	$	2,890		$	3,116		(7) %	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	47		%	57		%	(10) pts	Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	47		%	57		%	(10) pts
Long-term debt, net of current portion	Long-term debt, net of current portion	2,078			2,173			(4)%	Long-term debt, net of current portion	1,961			2,173			(10)%
Shareholders’ equity	Shareholders’ equity	$	3,637		$	3,801		(4)%	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)	March 31, 2022			December 31, 2021			Change	(in millions)	June 30, 2022			December 31, 2021			Change
Long-term debt, net of current portion	Long-term debt, net of current portion	$	2,078		$	2,173		(4)%	Long-term debt, net of current portion	$	1,961		$	2,173		(10)%
Capitalized operating leases	Capitalized operating leases	1,629			1,547			5%	Capitalized operating leases	1,779			1,547			15%

Adjusted debt, net of current portion of long-term debt	Adjusted debt, net of current portion of long-term debt	$	3,707		$	3,720		—%	Adjusted debt, net of current portion of long-term debt	$	3,740		$	3,720		1%
Shareholders' equity	Shareholders' equity	3,637			3,801			(4)%	Shareholders' equity	3,799			3,801			—%
Total invested capital	Total invested capital	$	7,344		$	7,521		(2)%	Total invested capital	$	7,539		$	7,521		—%

Debt-to-capitalization, including operating leases	Debt-to-capitalization, including operating leases	50		%	49		%	1 pt	Debt-to-capitalization, including operating leases	50		%	49		%	1 pt


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)	March 31, 2022		December 31, 2021		(in millions)	June 30, 2022		December 31, 2021
Current portion of long-term debt	Current portion of long-term debt	$	292	$	366	Current portion of long-term debt	$	342	$	366
Current portion of operating lease liabilities	Current portion of operating lease liabilities	272		268		Current portion of operating lease liabilities	274		268
Long-term debt	Long-term debt	2,078		2,173		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	1,357		1,279		Long-term operating lease liabilities, net of current portion	1,505		1,279
Total adjusted debt	Total adjusted debt	3,999		4,086		Total adjusted debt	4,082		4,086
Less: Cash and marketable securities	Less: Cash and marketable securities	(2,890)		(3,116)		Less: Cash and marketable securities	(3,425)		(3,116)
Adjusted net debt	Adjusted net debt	$	1,109	$	970	Adjusted net debt	$	657	$	970

(in millions)	(in millions)	Twelve Months Ended March 31, 2022		Twelve Months Ended December 31, 2021		(in millions)	Twelve Months Ended June 30, 2022		Twelve Months Ended December 31, 2021
GAAP Operating Income(a)	GAAP Operating Income(a)	$	644	$	685	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	(468)		(925)		Payroll Support Program grant wage offset and special items	208		(925)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(132)		(47)		Mark-to-market fuel hedge adjustments	(46)		(47)
Depreciation and amortization	Depreciation and amortization	399		394		Depreciation and amortization	405		394
Aircraft rent	Aircraft rent	265		254		Aircraft rent	276		254
EBITDAR	EBITDAR	$	708	$	361	EBITDAR	$	1,125	$	361
Adjusted net debt to EBITDAR	Adjusted net debt to EBITDAR	1.6x		2.7x		Adjusted net debt to EBITDAR	0.6x		2.7x

(a)Operating 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.

3238

ANALYSIS OF OUR CASH FLOWS

Cash Provided by Operating Activities

For the first ~~three~~six months of 2022, net cash provided by operating activities was ~~$287 million,~~$1.2 billion, compared to ~~$167 million~~$1.0 billion during the same period in 2021. The ~~$120~~$228 million net increase in our operating cash flows is ~~primarily attributable~~due to ~~increased build~~a combination of factors. First, we received $260 million in federal income tax refunds during the first six months of 2022. Additionally, growth in our air traffic liability asresulting from historic levels of demand led to an increase in operating cash ~~advance bookings~~flows of $155 million compared to the same period in ~~March 2022 reached~~ the ~~highest monthly total in company history. This increase was~~prior year. These amounts were partially offset by uses of cash on increasing operating expenses ~~and greater payout on our performance based pay program~~ as ~~compared~~the business returned capacity back to ~~2021.~~the network.

Cash Used in Investing Activities

Cash ~~provided by~~used in investing activities was ~~$39~~$721 million during the first ~~three~~six months of 2022, compared to ~~$543 million used in investing activities~~$1.1 billion during the same period of 2021. ~~The shift to cash provided by investing activities is primarily due to net sales of marketable securities, which were $328 million~~Cash used in ~~the first three months of 2022, compared to net purchases of $511 million in the three months ended March 31, 2021. This activity was partially offset by an increase in cash used for~~ capital expenditures ~~of $261 million~~ for aircraft purchase deposits and other property and ~~equipment.~~equipment was $632 million in the first six months of 2022, compared to $102 million in the first six months of 2021. This increase in cash used in 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.

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

Cash used in financing activities was ~~$168~~$206 million during the first ~~three~~six months of 2022, compared to ~~cash provided by financing activities of $82~~$281 million during the same period in 2021. During the first ~~three~~six months of 2022, we had no new proceeds from issuance of debt and utilized cash on hand to repay ~~$170~~$239 million of outstanding long-term debt, compared to debt proceeds of ~~$189~~$363 million and payments of ~~$115~~$681 million during the same period in 2021.

MATERIAL CASH COMMITMENTS

Aircraft Commitments

As of ~~March 31,~~June 30, 2022, Alaska has firm orders to purchase 6760 Boeing 737 aircraft with deliveries in 2022 through 2024 and firm commitments to lease ~~seven~~six Boeing 737-9 aircraft with deliveries in ~~2022. Alaska also has an agreement with SkyWest Airlines to expand their long-term capacity purchase agreement by six Embraer E175 aircraft in~~ 2022 and ~~one in~~ 2023. ~~Horizon has commitments to purchase 12 Embraer E175 aircraft with deliveries between 2022 and 2025.~~ Alaska has options to acquire up to 11 additional Boeing 737-9 aircraft and 41 additional Boeing 737-10 aircraft with deliveries between 2024 and 2026. Horizon has commitments to purchase 20 Embraer E175 aircraft with deliveries between 2022 and 2026. Horizon has options to acquire 13 Embraer E175 aircraft between 2024 and 2025. Options will be exercised only if we believe return on invested capital targets can be met over the long term.

3339

The following table summarizes our anticipated fleet count by year, as of ~~March 31,~~June 30, 2022:


		Actual Fleet	Anticipated Fleet Activity(a)								Actual Fleet	Anticipated Fleet Activity(a)
Aircraft	Aircraft	March 31, 2022	2022 Additions	2022 Removals	Dec 31, 2022	2023 Changes	Dec 31, 2023	2024 Changes	Dec 31, 2024	Aircraft	June 30, 2022	2022 Additions	2022 Removals	Dec 31, 2022	2023 Changes	Dec 31, 2023	2024 Changes	Dec 31, 2024
737 Freighters(b)		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(b)		61	—	—	61	—	61	—	61
B737-800										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
B737-8	B737-8	—	—	—	—	5	5	5	10	B737-8	—	—	—	—	5	5	5	10
B737-9	B737-9	19	23	—	42	28	70	7	77	B737-9	28	14	—	42	31	73	5	78
B737-10	B737-10	—	—	—	—	—	—	6	6	B737-10	—	—	—	—	—	—	6	6
A320(d)		30	—	(14)	16	(16)	—	—	—
A320(c)										A320(c)	29	—	(16)	13	(13)	—	—	—
A321neo	A321neo	10	—	—	10	(10)	—	—	—	A321neo	10	—	—	10	(10)	—	—	—
Total Mainline Fleet	Total Mainline Fleet	225	23	(14)	234	7	241	18	259	Total Mainline Fleet	233	14	(16)	231	13	244	16	260
Q400 operated by Horizon(d)		32	—	(8)	24	(24)	—	—	—
Q400 operated by Horizon(c)										Q400 operated by Horizon(c)	32	—	(11)	21	(21)	—	—	—
E175 operated by Horizon	E175 operated by Horizon	30	3	—	33	6	39	—	39	E175 operated by Horizon	30	3	—	33	8	41	3	44
E175 operated by third party		36	6	—	42	1	43	—	43
Total Regional Fleet(c)		98	9	(8)	99	(17)	82	—	82
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	323	32	(22)	333	(10)	323	18	341	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)~~Excludes the planned addition of two 737-800 freighters following conversion from passenger aircraft, as well as the subsequent replacement of passenger aircraft.~~

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

~~(d)~~(c)In ~~March~~the first quarter of 2022, management announced its intention to accelerate the ~~removal~~retirement of the A320 and Q400 aircraft and remove them from the operating ~~fleet.~~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 SkyWest Airlines by one Embraer E175 aircraft, with expected delivery in 2025.

For future firm orders and option exercises, we 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 % of Expected Fuel Requirements		Weighted-Average Crude Oil Price per Barrel	Average Premium Cost per Barrel		Approximate % of Expected Fuel Requirements(a)		Weighted-Average Crude Oil Price per Barrel	Average Premium Cost per Barrel

Second Quarter 2022		50	%	$71	$3

Third Quarter 2022	Third Quarter 2022	50	%	$80	$3	Third Quarter 2022	60	%	$80	$3
Fourth Quarter 2022	Fourth Quarter 2022	40	%	$83	$5	Fourth Quarter 2022	60	%	$88	$5
Full Year 2022		47	%	$78	$4
Remainder of 2022						Remainder of 2022	60	%	$84	$4
First Quarter of 2023	First Quarter of 2023	30	%	$84	$6	First Quarter of 2023	40	%	$91	$7
Second Quarter of 2023	Second Quarter of 2023	20	%	$92	$7	Second Quarter of 2023	30	%	$97	$7
Third Quarter of 2023	Third Quarter of 2023	10	%	$100	$8	Third Quarter of 2023	20	%	$106	$8
Fourth Quarter of 2023						Fourth Quarter of 2023	10	%	$108	$9
Full Year 2023	Full Year 2023	15	%	$90	$7	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 ~~March 31,~~June 30, 2022. For agreements with variable terms, amounts included reflect our minimum obligations.


(in millions)	(in millions)	Remainder of 2022		2023		2024		2025		2026		Beyond 2026		Total		(in millions)	Remainder of 2022		2023		2024		2025		2026		Beyond 2026		Total
Debt obligations	Debt obligations	$	201	$	334	$	240	$	261	$	176	$	1,176	$	2,388	Debt obligations	$	146	$	329	$	235	$	256	$	176	$	1,178	$	2,320
Aircraft lease commitments(a)	Aircraft lease commitments(a)	235		255		198		193		188		710		1,779		Aircraft lease commitments(a)	167		279		222		217		213		896		1,994
Facility lease commitments	Facility lease commitments	13		16		9		8		8		86		140		Facility lease commitments	9		16		9		8		8		86		136
Aircraft-related commitments(b)	Aircraft-related commitments(b)	1,159		1,781		414		111		47		275		3,787		Aircraft-related commitments(b)	834		1,932		388		124		113		275		3,666

Interest obligations (c)	Interest obligations (c)	50		95		71		53		53		132		454		Interest obligations (c)	44		97		68		53		56		151		469
Other obligations (d)	Other obligations (d)	144		193		199		203		199		757		1,695		Other obligations (d)	100		199		206		210		207		832		1,754
Total	Total	$	1,802	$	2,674	$	1,131	$	829	$	671	$	3,136	$	10,243	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 ~~March 31,~~June 30, 2022.

(d)Comprised of non-aircraft lease costs associated with capacity purchase 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

Except as described below, for information regarding 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, 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 ~~March 31,~~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 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

3743


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, 2021.

3844


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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).

3945

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.

~~Alaska~~ The Company is ~~seeking~~analyzing a ~~conclusive U.S. Supreme Court ruling that the California laws on which the judgment is based are invalid as applied~~range of potential options to ~~airlines pursuant to the U.S. Constitution~~balance new compliance obligations with operational and ~~provisions~~labor considerations. Some or all of federal law that were enacted 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. If appeal efforts are unsuccessful, compliance with California and other states' lawsthese solutions may have an adverse impact on the ~~Company's~~Company’s operations and financial ~~position.~~


ITEM 1A. RISK FACTORS

See Part I, Item 1A. "Risk Factors," in our 2021 Form 10-K for a detailed discussion of risk factors affecting 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.

As of ~~March 31,~~June 30, 2022, a total of 1,455,438 shares of the Company’s common stock have been issued to Treasury in connection with the Payroll Support Program. Each warrant is exercisable at a strike price of $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/ EMILY HALVERSON
Emily Halverson
Vice President Finance and Controller

~~May 5,~~August 2, 2022

4147

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
10.1†*
Supplemental Agreement No. 19 to Purchase Agreement No. 3866 between the Boeing Company and Alaska Airlines, Inc.
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
* 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.

4248


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	2122
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	3844
ITEM 4.	CONTROLS AND PROCEDURES	3945
PART II.	OTHER INFORMATION	4046
ITEM 1.	LEGAL PROCEEDINGS	4046
ITEM 1A.	RISK FACTORS	4046
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4046
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	4046
ITEM 4.	MINE SAFETY DISCLOSURES	4046
ITEM 5.	OTHER INFORMATION	4146
ITEM 6.	EXHIBITS	4147
	SIGNATURES	4147