OPERATING SEGMENT INFORMATION | OPERATING SEGMENT INFORMATION Air Group has two operating airlines - Alaska Airlines and Horizon Air. Each is a regulated airline with separate management teams primarily in operational roles. Horizon sells 100% of its capacity to Alaska under a CPA, for which all intercompany transactions are eliminated upon consolidation. In addition, Alaska has CPAs with SkyWest to fly certain routes and PenAir to fly one route in the state of Alaska. The Company attributes revenue between Mainline and Regional based on the coupon fare in effect on the date of issuance relative to the origin and destination of each flight segment. To manage the two operating airlines and the revenues and expenses associated with the CPAs, management views the business in three operating segments. Alaska Mainline - Flying Boeing 737 jets and all associated revenues and costs. Alaska Regional - Alaska's CPAs with Horizon, SkyWest and PenAir. In this segment, Alaska Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective CPAs. Additionally, Alaska Regional includes an allocation of corporate overhead such as IT, finance, and other administrative costs incurred by Alaska on behalf of the regional operations. Horizon - Horizon operates turboprop Q400 aircraft. All of Horizon's capacity is sold to Alaska under a CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs, and maintenance costs. The following table reports “Air Group adjusted,” which is not a measure determined in accordance with GAAP. The Company's chief operating decision-makers and others in management use this measure to evaluate operational performance and determine resource allocations. Adjustments are further explained below in reconciliation to consolidated GAAP results. Operating segment information is as follows (in millions): Three Months Ended September 30, 2015 Alaska Mainline Regional Horizon Consolidating Air Group Adjusted (a) Special Items (b) Consolidated Operating revenues Passenger Mainline $ 1,057 $ — $ — $ — $ 1,057 $ — $ 1,057 Regional — 240 — — 240 — 240 Total passenger revenues 1,057 240 — — 1,297 — 1,297 CPA revenues — — 105 (105 ) — — — Freight and mail 29 1 — — 30 — 30 Other - net 167 20 1 — 188 188 Total operating revenues 1,253 261 106 (105 ) 1,515 — 1,515 Operating expenses Operating expenses, excluding fuel 667 181 93 (104 ) 837 — 837 Economic fuel 205 35 — — 240 5 245 Total operating expenses 872 216 93 (104 ) 1,077 5 1,082 Nonoperating income (expense) Interest income 5 — — — 5 — 5 Interest expense (7 ) — (3 ) — (10 ) — (10 ) Other 7 — — 2 9 — 9 5 — (3 ) 2 4 — 4 Income before income tax $ 386 $ 45 $ 10 $ 1 $ 442 $ (5 ) $ 437 Three Months Ended September 30, 2014 Alaska Mainline Regional Horizon Consolidating Air Group Adjusted (a) Special Items (b) Consolidated Operating revenues Passenger Mainline $ 1,030 $ — $ — $ — $ 1,030 $ — $ 1,030 Regional — 219 — — 219 — 219 Total passenger revenues 1,030 219 — — 1,249 — 1,249 CPA revenues — — 99 (99 ) — — — Freight and mail 30 2 — — 32 — 32 Other - net 161 22 1 — 184 — 184 Total operating revenues 1,221 243 100 (99 ) 1,465 — 1,465 Operating expenses Operating expenses, excluding fuel 605 162 85 (97 ) 755 — 755 Economic fuel 338 52 — — 390 4 394 Total operating expenses 943 214 85 (97 ) 1,145 4 1,149 Nonoperating income (expense) Interest income 5 — — — 5 — 5 Interest expense (8 ) — (4 ) — (12 ) — (12 ) Other 7 — — — 7 — 7 4 — (4 ) — — — — Income before income tax $ 282 $ 29 $ 11 $ (2 ) $ 320 $ (4 ) $ 316 Nine Months Ended September 30, 2015 Alaska Mainline Regional Horizon Consolidating Air Group Adjusted (a) Special Items (b) Consolidated Operating revenues Passenger Mainline 2,977 — — — 2,977 — 2,977 Regional — 638 — — 638 — 638 Total passenger revenues 2,977 638 — — 3,615 — 3,615 CPA revenues — — 303 (303 ) — — — Freight and mail 79 4 — — 83 — 83 Other-net 465 55 3 523 — 523 Total operating revenues 3,521 697 306 (303 ) 4,221 — 4,221 Operating expenses Operating expenses, excluding fuel 1,951 514 274 (302 ) 2,437 — 2,437 Economic fuel 641 101 — — 742 (1 ) 741 Total operating expenses 2,592 615 274 (302 ) 3,179 (1 ) 3,178 Nonoperating income (expense) Interest income 15 — — 1 16 — 16 Interest expense (21 ) — (8 ) (3 ) (32 ) — (32 ) Other 21 — — 5 26 — 26 15 — (8 ) 3 10 — 10 Income before income tax 944 82 24 2 1,052 1 1,053 Nine Months Ended September 30, 2014 Alaska Mainline Regional Horizon Consolidating Air Group Adjusted (a) Special Items (b) Consolidated Operating revenues Passenger Mainline 2,858 — — — 2,858 — 2,858 Regional — 605 — — 605 — 605 Total passenger revenues 2,858 605 — — 3,463 — 3,463 CPA revenues — — 277 (277 ) — — — Freight and mail 84 4 — — 88 — 88 Other-net 448 59 4 — 511 — 511 Total operating revenues 3,390 668 281 (277 ) 4,062 — 4,062 Operating expenses Operating expenses, excluding fuel 1,783 464 257 (274 ) 2,230 — 2,230 Economic fuel 980 149 — — 1,129 (17 ) 1,112 Total operating expenses 2,763 613 257 (274 ) 3,359 (17 ) 3,342 Nonoperating income (expense) Interest income 15 — — — 15 — 15 Interest expense (25 ) (1 ) (10 ) — (36 ) — (36 ) Other 34 — — — 34 — 34 24 (1 ) (10 ) — 13 — 13 Income before income tax 651 54 14 (3 ) 716 17 733 (a) The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain charges. (b) Includes mark-to-market fuel-hedge accounting charges. Total assets were as follows (in millions): September 30, December 31, Alaska $ 7,922 $ 6,772 Horizon 763 818 Parent company 4,161 3,552 Elimination of inter-company accounts (6,282 ) (4,961 ) Consolidated $ 6,564 $ 6,181 |