SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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

¨☐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



19300 International Boulevard,	Seattle, ~~Washington~~	WA	98188
~~Telephone: (206) 392-5040~~

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 x☒ 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 x☒ No ¨☐

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 x☒

ALASKA AIR GROUP, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, ~~2017~~2022

As used in this Form 10-Q, the terms “Air Group,” the ~~"Company,"~~“Company,” “our,” “we” and "us" refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc.~~, Virgin America Inc.,~~ and Horizon Air Industries, Inc. are referred to as ~~“Alaska,” "Virgin America"~~“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. You can generally identify forward-looking statements as statements containing the words "believe," "expect," "will," "anticipate," "intend," "estimate," "project," "assume" or other similar expressions, although not all forward-looking statements contain these identifying words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations. ~~Some of the things that could cause our actual results to differ from our expectations are:~~

~~the competitive environment in our industry;~~

~~changes in our operating costs, including fuel, which can be volatile;~~

~~our ability to meet our cost reduction goals;~~

~~labor disputes and our ability to attract and retain qualified personnel;~~

~~operational disruptions;~~

~~an aircraft accident or incident;~~

~~general economic conditions, including the impact of those conditions on customer travel behavior;~~

~~the concentration of our revenue from a few key markets;~~

~~actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities;~~

~~our reliance on automated systems and the risks associated with changes made to those systems;~~

~~changes in laws and regulations;~~

~~our ability to successfully integrate the operations of Virgin America into those of Alaska;~~

~~our ability to achieve anticipated synergies and timing thereof in connection with the acquisition of Virgin America.~~

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. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse to our shareholders. For a discussion of ~~these and other~~our risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, ~~2016, and Item 1A. "Risk Factors" included herein.~~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)	September 30, 2022		December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents	$	688	$	470
Marketable securities	2,462		2,646
Total cash and marketable securities	3,150		3,116
Receivables - net	345		546
Inventories and supplies - net	94		62
Prepaid expenses and other current assets	221		196
Total Current Assets	3,810		3,920

Property and Equipment
Aircraft and other flight equipment	8,811		8,127
Other property and equipment	1,589		1,489
Deposits for future flight equipment	300		384
	10,700		10,000
Less accumulated depreciation and amortization	4,046		3,862
Total Property and Equipment - Net	6,654		6,138

Other Assets
Operating lease assets	1,605		1,453
Goodwill and intangible assets	2,040		2,044
Other noncurrent assets	422		396
Total Other Assets	4,067		3,893

Total Assets	$	14,531	$	13,951

(in millions) September 30, 2017 December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents $ 144
$ 328
Marketable securities 1,596
1,252
Total cash and marketable securities 1,740
1,580
Receivables—net 301
302
Inventories and supplies—net 57
47
Prepaid expenses and other current assets 116
121
Total Current Assets 2,214
2,050

Property and Equipment

Aircraft and other flight equipment 7,590
6,947
Other property and equipment 1,187
1,103
Deposits for future flight equipment 531
545
9,308
8,595
Less accumulated depreciation and amortization 3,078
2,929
Total Property and Equipment—Net 6,230
5,666

Goodwill 1,934
1,934
Intangible assets 135
143
Other noncurrent assets 226
169
Other Assets 2,295
2,246

Total Assets $ 10,739
$ 9,962

~~See accompanying notes to condensed consolidated financial statements.~~

~~ALASKA AIR GROUP, INC.~~

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions, except share amounts)	September 30, 2022		December 31, 2021
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	202	$	200
Accrued wages, vacation and payroll taxes	583		457
Air traffic liability	1,467		1,163
Other accrued liabilities	805		625
Deferred revenue	1,068		912
Current portion of operating lease liabilities	263		268
Current portion of long-term debt	321		366
Total Current Liabilities	4,709		3,991

Long-Term Debt, Net of Current Portion	1,889		2,173

Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion	1,482		1,279
Deferred income taxes	571		578
Deferred revenue	1,413		1,446
Obligation for pension and post-retirement medical benefits	296		305
Other liabilities	345		378
Total Noncurrent Liabilities	4,107		3,986

Commitments and Contingencies (Note 7)

Shareholders' Equity
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding	—		—
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 136,184,043 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,834,099 shares; 2021 - 125,905,864 shares	1		1
Capital in excess of par value	549		494
Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares	(674)		(674)
Accumulated other comprehensive loss	(328)		(262)
Retained earnings	4,278		4,242
	3,826		3,801
Total Liabilities and Shareholders' Equity	$	14,531	$	13,951

(in millions, except share amounts) September 30, 2017 December 31, 2016
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 97
$ 92
Accrued wages, vacation and payroll taxes 345
397
Air traffic liability 1,103
849
Other accrued liabilities 886
878
Current portion of long-term debt 334
319
Total Current Liabilities 2,765
2,535

Long-Term Debt, Net of Current Portion 2,367
2,645
Other Liabilities and Credits

Deferred income taxes 682
463
Deferred revenue 682
640
Obligation for pension and postretirement medical benefits 323
331
Other liabilities 429
417
2,116
1,851
Commitments and Contingencies

Shareholders' Equity

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: 2017 - 129,860,836 shares; 2016 - 129,189,634 shares, Outstanding: 2017 - 123,387,158 shares; 2016 - 123,328,051 shares 1
1
Capital in excess of par value 156
110
Treasury stock (common), at cost: 2017 - 6,473,678 shares; 2016 - 5,861,583 shares (494 ) (443 )
Accumulated other comprehensive loss (289 ) (305 )
Retained earnings 4,117
3,568
3,491
2,931
Total Liabilities and Shareholders' Equity $ 10,739
$ 9,962

~~See accompanying notes to condensed consolidated financial statements.~~

~~ALASKA AIR GROUP, INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share amounts)	2022		2021		2022		2021
Operating Revenues
Passenger revenue	$	2,615	$	1,774	$	6,544	$	3,785
Mileage Plan other revenue	146		120		433		332
Cargo and other	67		59		190		160
Total Operating Revenues	2,828		1,953		7,167		4,277
Operating Expenses
Wages and benefits	686		578		1,931		1,581
Variable incentive pay	48		42		140		109
Payroll Support Program grant wage offset	—		—		—		(914)
Aircraft fuel, including hedging gains and losses	877		376		2,000		853
Aircraft maintenance	92		89		331		272
Aircraft rent	76		64		222		188
Landing fees and other rentals	161		141		435		414
Contracted services	83		62		243		167
Selling expenses	82		49		218		123
Depreciation and amortization	104		99		310		294
Food and beverage service	52		39		143		97
Third-party regional carrier expense	53		39		145		106
Other	207		126		536		348
Special items - fleet transition	155		(9)		376		5
Special items - labor ratification bonus	90		—		90		—
Special items - restructuring	—		—		—		(12)

Total Operating Expenses	2,766		1,695		7,120		3,631
Operating Income	62		258		47		646

Non-operating Income (Expense)
Interest income	17		6		35		19
Interest expense	(31)		(30)		(84)		(101)
Interest capitalized	3		3		8		9
Other - net	14		8		38		27
Total Non-operating Income (Expense)	3		(13)		(3)		(46)
Income Before Income Tax	65		245		44		600
Income tax expense	25		51		8		140
Net Income	$	40	$	194	$	36	$	460

Basic Earnings Per Share:	$	0.32	$	1.55	$	0.28	$	3.69
Diluted Earnings Per Share:	$	0.31	$	1.53	$	0.28	$	3.64
Shares used for computation:
Basic	126.783		125.250		126.440		124.846
Diluted	128.370		127.188		128.087		126.325

Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except per share amounts) 2017 2016 2017 2016
Operating Revenues
Passenger
Mainline $ 1,562
$ 1,073
$ 4,390
$ 3,036
Regional 262
249
725
682
Total passenger revenue 1,824
1,322
5,115
3,718
Freight and mail 32
31
88
82
Other—net 264
213
768
607
Total Operating Revenues 2,120
1,566
5,971
4,407

Operating Expenses

Wages and benefits 475
340
1,392
1,008
Variable incentive pay 40
31
98
95
Aircraft fuel, including hedging gains and losses 368
225
1,051
593
Aircraft maintenance 88
64
271
197
Aircraft rent 70
25
204
80
Landing fees and other rentals 124
89
338
232
Contracted services 76
63
234
183
Selling expenses 91
58
269
162
Depreciation and amortization 95
101
275
281
Food and beverage service 50
31
145
93
Third-party regional carrier expense 30
25
84
72
Special items—merger-related costs 24
22
88
36
Other 150
92
424
267
Total Operating Expenses 1,681
1,166
4,873
3,299
Operating Income 439
400
1,098
1,108

Nonoperating Income (Expense)

Interest income 9
7
25
20
Interest expense (26 ) (11 ) (77 ) (33 )
Interest capitalized 5
6
13
21
Other—net —
—
(1 ) (2 )
(12 ) 2
(40 ) 6
Income before income tax 427
402
1,058
1,114
Income tax expense 161
146
397
414
Net Income $ 266
$ 256
$ 661
$ 700

Basic Earnings Per Share: $ 2.15
$ 2.08
$ 5.35
$ 5.66
Diluted Earnings Per Share: $ 2.14
$ 2.07
$ 5.31
$ 5.63
Shares used for computation:
Basic 123.467
123.149
123.501
123.648
Diluted 124.220
123.833
124.341
124.393

Cash dividend declared per share: $ 0.30
$ 0.275
$ 0.90
$ 0.825

~~See accompanying notes to condensed consolidated financial statements.~~

~~ALASKA AIR GROUP, INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2022		2021		2022		2021
Net Income	$	40	$	194	$	36	$	460
Other comprehensive income (loss), net of tax
Marketable securities	(26)		(3)		(86)		(16)
Employee benefit plans	1		6		2		19
Interest rate derivative instruments	5		2		18		9
Total other comprehensive income (loss), net of tax	$	(20)	$	5	$	(66)	$	12

Total comprehensive income (loss), net	$	20	$	199	$	(30)	$	472

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2017 2016 2017 2016
Net Income $ 266
$ 256
$ 661
$ 700

Other Comprehensive Income (Loss):
Related to marketable securities:
Unrealized holding gain (loss) arising during the period 1
(2 ) 5
17
Reclassification of (gain) loss into Other—net nonoperating income (expense) (1 ) —
—
(1 )
Income tax effect —
—
(2 ) (6 )
Total —
(2 ) 3
10

Related to employee benefit plans:
Reclassification of net pension expense into Wages and benefits 5
5
16
15
Income tax effect (2 ) (1 ) (5 ) (5 )
Total 3
4
11
10

Related to interest rate derivative instruments:
Unrealized holding gain (loss) arising during the period —
1
(2 ) (6 )
Reclassification of (gain) loss into Aircraft rent 2
1
4
4
Income tax effect (1 ) (1 ) (1 ) 1
Total 1
1
1
(1 )

Other Comprehensive Income 4
3
15
19

Comprehensive Income $ 270
$ 259
$ 676
$ 719

~~See accompanying notes to condensed consolidated financial statements.~~

~~ALASKA AIR GROUP, INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)


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

Stock-based compensation	—	—		13		—		—		—		13



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

Stock-based compensation	0.017	—		9		—		—		—		9


Stock issued for employee stock purchase plan	0.643	—		30		—		—		—		30
Stock issued under stock plans	0.012	—		—		—		—		—		—
Balances at June 30, 2022	126.760	$	1	$	542	$	(674)	$	(308)	$	4,238	$	3,799
Net income (loss)	—	—		—		—		—		40		40
Other comprehensive income (loss)	—	—		—		—		(20)		—		(20)

Stock-based compensation	—	—		8		—		—		—		8


Stock issued under stock plans	0.074	—		(1)		—		—		—		(1)
Balances at September 30, 2022	126.834	$	1	$	549	$	(674)	$	(328)	$	4,278	$	3,826


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

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

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


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

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

Stock issued for employee stock purchase plan	0.716	—		23		—		—		—		23
Stock issued under stock plans	0.062	—		1		—		—		—		1
Balances at June 30, 2021	125.229	$	1	$	454	$	(674)	$	(487)	$	4,030	$	3,324
Net income (loss)	—	—		—		—		—		194		194
Other comprehensive income (loss)	—	—		—		—		5		—		5

Stock-based compensation	—	—		10		—		—		—		10
Stock issued under stock plans	0.076	—		(2)		—		—		—		(2)
Balances at September 30, 2021	125.305	$	1	$	462	$	(674)	$	(482)	$	4,224	$	3,531

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended September 30,
(in millions)		2022		2021
Cash flows from operating activities:
Net Income		$	36	$	460
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		310		294
Stock-based compensation and other		33		35
Special items - fleet transition		376		5
Special items - restructuring		—		(12)
Changes in certain assets and liabilities:
Changes in deferred tax provision		—		95
Increase in accounts receivable		(59)		(56)
Increase in air traffic liability		304		152
Increase in deferred revenue		123		73
Pension contribution		—		(100)
Federal income tax refund		260		—
Other - net		26		(45)
Net cash provided by operating activities		1,409		901
Cash flows from investing activities:
Property and equipment additions:
Aircraft and aircraft purchase deposits		(688)		(52)
Other flight equipment		(156)		(78)
Other property and equipment		(103)		(60)
Total property and equipment additions, including capitalized interest		(947)		(190)
Purchases of marketable securities		(1,670)		(3,413)
Sales and maturities of marketable securities		1,731		2,669
Other investing activities		(2)		(9)
Net cash used in investing activities		(888)		(943)
Cash flows from financing activities:
Proceeds from issuance of debt		—		363


Long-term debt payments		(333)		(1,222)
Other financing activities		37		34
Net cash used in financing activities		(296)		(825)
Net increase (decrease) in cash, cash equivalents, and restricted cash		225		(867)
Cash, cash equivalents, and restricted cash at beginning of period		494		1,386
Cash, cash equivalents, and restricted cash at end of the period		$	719	$	519

Nine Months Ended September 30,
(in millions) 2017 2016
Cash flows from operating activities:
Net income $ 661
$ 700
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 275
281
Stock-based compensation and other 43
19
Changes in certain assets and liabilities:
Changes in deferred tax provision 217
47
Increase in air traffic liability 254
116
Increase in deferred revenue 46
60
Other—net (139 ) (17 )
Net cash provided by operating activities 1,357
1,206

Cash flows from investing activities:

Property and equipment additions:

Aircraft and aircraft purchase deposits (679 ) (408 )
Other flight equipment (70 ) (35 )
Other property and equipment (92 ) (66 )
Total property and equipment additions, including capitalized interest (841 ) (509 )
Purchases of marketable securities (1,408 ) (775 )
Sales and maturities of marketable securities 1,069
638
Other investing activities 38
5
Net cash used in investing activities (1,142 ) (641 )

Cash flows from financing activities:

Proceeds from issuance of debt —
1,546
Long-term debt payments (265 ) (93 )
Common stock repurchases (50 ) (193 )
Dividends paid (111 ) (102 )
Other financing activities 27
22
Net cash provided (used) by financing activities (399 ) 1,180
Net increase (decrease) in cash and cash equivalents (184 ) 1,745
Cash and cash equivalents at beginning of year 328
73
Cash and cash equivalents at end of the period $ 144
$ 1,818

Supplemental disclosure:

Cash paid during the period for:
Interest (net of amount capitalized) $ 68
$ 12
Income taxes 129
321


	Nine Months Ended September 30,
(in millions)		2022		2021
Cash paid during the period for:
Interest (net of amount capitalized)		$	72	$	100
Income taxes		—		—

Non-cash transactions:
Right-of-use assets acquired through operating leases		419		126

Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents		688		495
Restricted cash included in Prepaid expenses and other current assets		31		24
Total cash, cash equivalents, and restricted cash at end of the period		$	719	$	519

~~See accompanying notes to condensed consolidated financial statements.~~

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

NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

The condensed consolidated financial statements include the accounts of Air Group, or the Company, and its primary subsidiaries, Alaska ~~Horizon,~~and Horizon. The condensed consolidated financial statements also include McGee Air Services ~~and, starting December 14, 2016, Virgin America.~~(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")~~(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, ~~2016~~.2021. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of September 30, ~~2017~~2022 and the results of operations for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~.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.~~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 nine months ended September 30, ~~2017~~2022 are not necessarily indicative of operating results for the entire year.

~~Recently Issued Accounting Pronouncements~~

NOTE 2. FLEET TRANSITION

In ~~May 2014,~~ the ~~Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" (Topic 606), which requires an entity to recognize the amount~~first quarter of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This comprehensive new standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations" to clarify the guidance on determining whether2022, the Company announced plans to accelerate the transition of its mainline operations to an all-Boeing 737 fleet. It also announced plans to transition its regional operations to an all-Embraer fleet, retiring the Q400 fleet. Under these plans, Alaska is ~~considered~~accelerating the ~~principal or~~retirement of its Airbus A320 aircraft, with all expected to exit the ~~agent in a revenue transaction where a third party is providing goods or services~~fleet by January 2023. Alaska also operates Airbus A321neo aircraft, and plans to ~~a customer. Entities are permitted~~remove them from its fleet by the end of 2023, subject to use either a full retrospective or cumulative effect transition method, and are required to adopt all parts of the new revenue standard using the same transition method. The new standard is effective for the Company on January 1, 2018.

~~At this time, the Company believes the most significant impact to the financial statements will be to Mileage Plan™ revenues and liabilities.~~agreement with counterparties. The Company ~~currently uses the incremental cost approach for miles earned through travel. As this approach will be eliminated with the standard, the Company will be required~~operated 23 A320 and ten A321neo aircraft as of September 30, 2022. Horizon plans to ~~allocate a portion~~retire its Q400 fleet, which includes 19 owned and three leased aircraft in operation as of the ticket price through a relative selling price model and defer revenue recognition until the ticket is flown or unused mileage credits expire. Additionally, unused companion certificates that were previously recognized at expiration will be subject to advanced breakage under the new standard. The Company estimates a net increase to Mileage Plan deferred revenuesSeptember 30, 2022, in January 2023.

Valuation of approximately $340 million to $380 million at the time of adoption. The allocated value to miles earned through travel will offset passenger revenue during the period they are issued, rather than recorded using the incremental cost approach. As the program is growing significantly, the Company expects revenue recognized under Topic 606 will be less on an annual basis than current accounting practice.long-lived assets

The adoption of the new standard is also expected to result in a change in income statement classification of the majority of ancillary revenues from Other revenue to Passenger revenue. This will affect common industry metrics, such as PRASM and RASM. Certain commission revenue from interline arrangements that were previously offset against related expense will now be classified as Other revenue, which will impact RASM and CASM. Unused ticket revenue that was previously recorded at the time of expiration will now be recorded at the original departure date if that ticket has not been changed or refunded prior to that date, based on estimates of expected expiration. This concept is referred to as ticket breakage. The Company estimates the change in ticket breakage methodology will not have a significant impact on the statements of operations, but will decrease air traffic liability by approximately $70 million to $80 million.

The Company ~~continues~~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. During the first quarter of 2022, the Company recorded an impairment charge of $70 million related to ~~evaluate and model~~ the ~~full impact~~Q400 fleet, reflecting the amount by which carrying value exceeded fair value of the ~~standard and will apply the full retrospective transition method. The overall impact to equity~~owned Q400 aircraft as of March 31, 2022. This amount was recorded within the ~~beginning~~"Special items - fleet transition" line 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 ~~retroactive reporting period, including~~three months ended March 31, 2022 for additional details.

In the ~~changes discussed above,~~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 ~~other less material changes, is~~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 ~~between $160 million~~removed from operating service. Incremental costs associated with the accelerated schedules are recognized within the "Special items - fleet transition" 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 ~~$190 million.~~

~~In February 2016,~~reasonably estimable, and are recognized over the ~~FASB issued ASU 2016-02, "Leases" (Topic 842), which requires lessees to recognize assets and liabilities for leases currently classified as~~remaining operating ~~leases. Under~~life of the ~~new standard, a lessee will recognize a liability~~aircraft. These estimates are based on the ~~balance sheet representing~~time remaining on the lease, ~~payments owed,~~planned aircraft usage, and ~~a right-of-use-asset representing its right~~lease terms. These estimates may change as actual amounts due to ~~use~~any lessor upon return may not be known with certainty until lease termination. In the ~~underlying asset~~third quarter, all lease return costs were recorded within the "Special items - fleet transition" line in the consolidated statement of operations.

A summary of special charges for fleet transition activities is included below for the ~~lease term. For leases with a term of 12~~three and nine months ~~or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. At this time,~~ended September 30, 2022. The impairment charges are one-time in nature, while the Company believes the most significant impact to the financial statements will relate to the recording of a right-of-use asset associated with leased aircraft. Other leases, including airports and real estate, equipment, software and other ~~miscellaneous leases~~special charges continue to be ~~assessed for impact~~recorded consistent

with the schedules described above. The majority of remaining charges will be recorded in 2022 with additional charges associated with the ~~ASU. The new standard is effective for the Company on January 1, 2019. Early adoption of the standard is permitted.~~Airbus A321neo aircraft to be recorded in 2023. The Company ~~has determined that it~~ will ~~not early adopt~~continue to evaluate the ~~standard.~~need for further impairment or adjustments for owned and leased long-lived assets as fleet decisions evolve.

~~In March 2016,~~


	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
(in millions)	Airbus		Q400		Total		Airbus		Q400		Total
Lease return costs and other expenses	$	75	$	—	$	75	$	183	$	—	$	183
Accelerated aircraft ownership expenses	62		18		80		102		21		123
Impairment of long-lived assets	—		—		—		—		70		70
Total special items - fleet transition	$	137	$	18	$	155	$	285	$	91	$	376

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents the FASB issued ASU 2016-09, "Compensation—Stock Compensation" (Topic 718), which simplifies several aspects of accounting for employee share-based payment awards, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU was adopted prospectively as of January 1, 2017. Prior periods have not been adjusted. The adoption of the standard did not have a material impact on the Company's statements of operations or financial position.

In January 2017, the FASB issued ASU 2017-04, "Intangibles—Goodwill and Other" (Topic 350), which eliminates step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The ASU is effective for the Company beginning January 1, 2019. Early adoption of the standard is permitted. Beginning in fiscal 2017, the Company will be required to perform an impairment test for goodwill arising from its acquisition of Virgin America and has adopted the standard effective January 1, 2017.

In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits" (Topic 715), which will require the Company to present the service cost component of net periodic benefit cost as Wages and benefits in the statements of operations. All other components of net periodic benefit cost will be required to be presented in Nonoperating income (expense) in the statements of operations. These components will not be eligible for capitalization in assets. The ASU is effective for the Company beginning January 1, 2018. Changes to the statements of operations under the ASU are applicable retrospectively. The adoption of this standard will have no impact on Income before income tax or Net income for the periods subject to retrospective reclassification. See Note 6 for the current componentsprimary source of the Company's revenue. Also included in Passenger revenue is passenger ancillary 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 ~~periodic benefit costs.~~

~~In August 2017, the FASB issued ASU 2017-12, "Derivatives~~of commissions. Cargo and ~~Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The ASU expands the activities that qualify for hedge accounting~~other revenue includes freight and simplifies the rules for reporting hedging relationships. The ASU is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact and has not yet determined whether it will early adopt.

~~NOTE 2. ACQUISITION OF VIRGIN AMERICA~~

~~Virgin America~~

On December 14, 2016, the Company acquired 100% of the outstanding common shares and voting interest of Virgin America for $57 per share, or total cash consideration of $2.6 billion. Virgin America offers scheduled air transportation throughout the United States and Mexico primarily from its hub cities of Los Angeles, San Franciscomail revenue, and to a lesser extent, ~~Dallas Love Field, to~~ other ~~major business~~ancillary revenue products such as lounge membership and ~~leisure destinations in North~~certain commissions.

In the first quarter of 2022, the Company amended its Mileage Plan co-branded credit card agreement with Bank of America. The ~~Company believes~~amendment extended the ~~acquisition~~term of ~~Virgin America will provide broader national reach~~the agreement into 2030 and ~~position it~~resulted in modifications to ~~better serve guests living on~~ the West Coast. The combined airline has approximately 1,200 daily departures and leverages Alaska's strength in the Pacific Northwest with Virgin America's strength in California. The Company believes that combining loyalty programs and networks will provide greater benefits for its guests and expand its international partner portfolio, giving guests an even more expansive global reach.separately identifiable performance obligations.

~~Merger-related costs~~

The Company ~~incurred pretax merger-related costs~~disaggregates revenue by segment in Note 9. The level of ~~$24~~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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Passenger ticket revenue, including ticket breakage, net of taxes and fees	$	2,252	$	1,483	$	5,536	$	3,122
Passenger ancillary revenue	127		101		337		235
Mileage Plan passenger revenue	236		190		671		428
Total Passenger revenue	$	2,615	$	1,774	$	6,544	$	3,785

Mileage Plan Loyalty Program

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Passenger revenue	$	236	$	190	$	671	$	428
Mileage Plan other revenue	146		120		433		332
Total Mileage Plan revenue	$	382	$	310	$	1,104	$	760

Cargo and Other

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cargo revenue	$	37	$	34	$	102	$	95
Other revenue	30		25		88		65
Total Cargo and other revenue	$	67	$	59	$	190	$	160

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $65 million and ~~$22~~$101 million from the prior year-end air traffic liability balance for the three months ended September 30, ~~2017~~2022 and ~~2016, respectively,~~2021, and ~~$88~~$587 million and ~~$36~~$276 million for the nine months ended September 30, ~~2017~~2022 and ~~2016, respectively. Costs classified as merger-related are directly attributable to merger activities~~2021.

Mileage Plan assets and ~~are recorded as "Special items—merger-related costs" within the statements of operations.~~ liabilities

The Company ~~expects to continue to incur merger-related costs in~~records a receivable for amounts due from the ~~future~~affinity card partner and from other partners as mileage credits are sold until the ~~integration continues.~~

~~Fair values~~ payments are collected. The Company had $80 million of ~~the assets acquired and the liabilities assumed~~

~~The transaction has been accounted for~~such receivables as a business combination using the acquisition method of accounting, which requires, among other things, assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date. As of September 30, ~~2017 the fair values~~2022 and $64 million as of ~~property and equipment and certain liabilities, included in other accrued liabilities and other liabilities, goodwill, intangible assets and deferred income taxes have been prepared on~~December 31, 2021.

The table below presents a preliminary basis and are subject to further adjustments as the Company completes its analysis. There were no significant fair value adjustments made during the three and nine months ended September 30, 2017. The Company will finalize the amounts recognized by December 14, 2017.

~~Fair values~~roll forward of the ~~assets acquired and the liabilities assumed as of the acquisition date of December 14, 2016, at September 30, 2017 and December 31, 2016 were as follows~~total frequent flyer liability (in millions):


	Nine Months Ended September 30,
	2022		2021
Total Deferred revenue balance at January 1	$	2,358	$	2,277
Travel miles and companion certificate redemption - Passenger revenue	(632)		(428)
Miles redeemed on partner airlines - Other revenue	(45)		(30)
Increase in liability for mileage credits issued	800		531
Total Deferred revenue balance at September 30	$	2,481	$	2,350

NOTE 3.4. 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 September 30, ~~2017,~~2022, total cost basis for all marketable securities was ~~$1.6 billion. There were no significant differences between the cost basis and~~$2.6 billion, compared to a total fair value of $2.5 billion. The decline in value is primarily due to changes in interest rates. Management does not believe any ~~individual class~~unrealized losses are the result of ~~marketable securities.~~expected credit losses based on its evaluation of available information as of September 30, 2022.

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


	September 30, 2022						December 31, 2021
	Level 1		Level 2		Total		Level 1		Level 2		Total

Assets
Marketable securities
U.S. government and agency securities	$	532	$	—	$	532	$	331	$	—	$	331
Equity mutual funds	5		—		5		6		—		6
Foreign government bonds	—		25		25		—		38		38
Asset-backed securities	—		260		260		—		311		311
Mortgage-backed securities	—		208		208		—		232		232
Corporate notes and bonds	—		1,384		1,384		—		1,663		1,663
Municipal securities	—		48		48		—		65		65
Total Marketable securities	537		1,925		2,462		337		2,309		2,646
Derivative instruments
Fuel hedge - call options	—		51		51		—		81		81
Interest rate swap agreements	—		15		15		—		—		—
Total Assets	$	537	$	1,991	$	2,528	$	337	$	2,390	$	2,727

Liabilities
Derivative instruments

Interest rate swap agreements	—		—		—		—		(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 isare 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

~~Activity for marketable securities (in millions):~~

Maturities for marketable securities (in millions):


September 30, 2022	Cost Basis		Fair Value
Due in one year or less	$	738	$	729
Due after one year through five years	1,811		1,704
Due after five years	26		24

Total	$	2,575	$	2,457

September 30, 2017 Cost Basis Fair Value
Due in one year or less $ 193
$ 193
Due after one year through five years 1,367
1,367
Due after five years through 10 years 36
36
Due after 10 years —
—
Total $ 1,596
$ 1,596

~~Management does not believe any unrealized losses represent other-than-temporary impairments based on its evaluation of available information as~~As of September 30, ~~2017.~~2022, $5 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, ~~and~~ Cash Equivalents, and Restricted Cash: ~~Carried~~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 ~~amortized~~ cost, which approximates fair value.

~~Debt~~: The ~~carrying amount~~Company's restricted cash balances are primarily used to guarantee various letters of ~~the Company's variable-rate debt~~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. ~~For~~

Debt: To estimate the fair value of all fixed-rate debt as of September 30, 2022, the Company uses the income approach ~~to determine the estimated fair value, calculated as the sum of future~~by discounting cash flows ~~discounted at~~or estimation using quoted market prices, utilizing borrowing rates for comparable debt over the ~~weighted~~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 $708 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as ~~certain inputs used are unobservable.~~it is not actively traded and is valued using discounted cash flows which is an unobservable input.

Fixed-rate debt ~~that is not carried at fair value~~ on the condensed consolidated balance sheet and the estimated fair value of long-term fixed-rate debt is as follows (in millions):


	September 30, 2022		December 31, 2021


Total fixed-rate debt	$	1,664	$	1,821

Estimated fair value	$	1,610	$	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. NoRefer to Note 2 for discussion regarding impairment ~~was recognized in~~charges recorded during the ~~three and~~ nine months ended September 30, ~~2017 or September 30, 2016.~~2022.

~~NOTE 4. FREQUENT FLYER PROGRAMS~~

~~Frequent flyer program deferred revenue and liabilities included in the consolidated balance sheets (in millions):~~

~~Frequent flyer program revenue included in the consolidated statements of operations (in millions):~~

NOTE 5. LONG-TERM DEBT

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


	September 30, 2022			December 31, 2021
Fixed-rate notes payable due through 2029	$	117		$	163
Fixed-rate PSP notes payable due through 2031	600			600
Fixed-rate EETC payable due through 2025 & 2027	947			1,058
Variable-rate notes payable due through 2029	562			738
Less debt issuance costs	(16)			(20)
Total debt	2,210			2,539
Less current portion	321			366
Long-term debt, less current portion	$	1,889		$	2,173

Weighted-average fixed-interest rate	3.5		%	3.7		%
Weighted-average variable-interest rate	4.2		%	1.3		%

Approximately $353 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at September 30, 2022, resulting in an effective weighted-average interest rate for the full debt portfolio of 3.5%.

September 30, 2017 December 31, 2016
Fixed-rate notes payable due through 2028 $ 1,024
$ 1,179
Variable-rate notes payable due through 2028 1,693
1,803
Less debt issuance costs (16 ) (18 )
Total debt 2,701
2,964
Less current portion 334
319
Long-term debt, less current portion $ 2,367
$ 2,645

Weighted-average fixed-interest rate 4.3 % 4.4 %
Weighted-average variable-interest rate 2.6 % 2.4 %

During the nine months ended September 30, ~~2017~~,2022, the Company made scheduled debt payments of ~~$265 million.~~$316 million and prepayments of $17 million for loans related to Q400 aircraft.

At September 30, ~~2017~~,2022, long-term debt principal payments for the next five years and thereafter are as follows (in millions):


	Total
Remainder of 2022	$	52
2023	309
2024	238
2025	273
2026	176
Thereafter	1,178
Total	$	2,226

Bank Lines of Credit

~~The Company~~Alaska has three credit facilities ~~with availability~~ totaling ~~$475 million. All three~~$486 million as of September 30, 2022. One of the credit facilities ~~have variable interest rates based on LIBOR plus a specified margin. One credit facility increased from~~ ~~$100~~for $150 million ~~to $250 million in June 2017. It~~ expires in ~~June 2021~~ and is secured by aircraft. The second credit facility increased from $52 million to $75 million in September 2017. It expires in September 2018 with a mechanism for annual renewal and is secured by aircraft. The third credit facility increased from $100 million to ~~$150 million~~ in March ~~2017. It expires in~~ ~~March 2022~~2025 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. ~~The Company~~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 2023 and is secured by aircraft.

Alaska has secured letters of credit against the ~~$75 million~~third facility, but has no plans to borrow using either of the other two ~~other~~ facilities. All ~~three~~ credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of ~~$500 million. The Company is~~$500 million. Alaska was in compliance with this covenant at September 30, ~~2017.~~2022.

NOTE 6. EMPLOYEE BENEFIT PLANS

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Service cost	$	12	$	13	$	34	$	39
Pension expense included in Wages and benefits	12		13		34		39

Interest cost	17		14		49		42
Expected return on assets	(32)		(30)		(96)		(91)
Amortization of prior service cost (credit)	(1)		(1)		(1)		(1)
Recognized actuarial loss	2		9		6		27
Pension expense included in Non-operating Income (Expense)	$	(14)	$	(8)	$	(42)	$	(23)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Service cost $ 10
$ 9
$ 30
$ 27
Interest cost 19
18
55
55
Expected return on assets (27 ) (27 ) (80 ) (81 )
Amortization of prior service cost (credit) (1 ) (1 ) (1 ) (1 )
Recognized actuarial loss (gain) 7
7
20
19
Total $ 8
$ 6
$ 24
$ 19

~~The Company contributed $15 million to the defined-benefit pension plan during the three months ended September 30, 2017.~~

NOTE 7. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of September 30, ~~2017~~2022 (in millions):


	Aircraft Commitments(a)		Capacity Purchase Agreements (b)
Remainder of 2022	$	529	$	41
2023	2,124		172
2024	512		178
2025	254		186
2026	249		186
Thereafter	738		763
Total	$	4,406	$	1,526

Capacity Purchase Agreements ^(a)

~~Lease Commitments~~

~~Aircraft lease~~(a)Includes contractual commitments ~~include future obligations for all of the Company's operating airlines—Alaska, Virgin America and Horizon, as well as aircraft leases operated by third-parties. At~~ ~~September 30, 2017~~, the Company had lease contracts for 10 Boeing 737 ("B737") aircraft, 55 Airbus aircraft, 15 Bombardier Q400 aircraft, and 21 Embraer 175 ("E175") with SkyWest Airlines, Inc. ("SkyWest"). The Company has an additional eight scheduled lease deliveries of A321neo aircraft through 2018, as well as 14 scheduled lease deliveries of E175 aircraft through 2018 to be flown by Skywest. All lease contracts have remaining non-cancelable lease terms ranging from 2017 to 2030. The Company has the option to increase capacity flown by SkyWest with eight additional E175 aircraft deliveries in 2020. Options to lease are not reflected in the commitments table above.

~~Facility lease commitments primarily include airport and terminal facilities and building leases. Total rent expense~~ for aircraft, engines, and ~~facility leases was $145 million and~~ ~~$82 million~~ ~~for the~~ ~~three~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016, and $406 million and $226 million for the nine months ended September 30, 2017 and 2016.~~aircraft maintenance. Option deliveries are excluded from minimum commitments until exercise.

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

Aircraft ~~Purchase~~ Commitments

Aircraft purchase commitments include ~~non-cancelable~~ contractual commitments for aircraft and engines. AsIn the second quarter of ~~September 30, 2017, the Company had commitments~~2022, Horizon amended its aircraft purchase agreement with Embraer, adding eight firm E175 deliveries between 2023 and 2026 and 13 options to purchase ~~48 B737 aircraft (16 B737 NextGen aircraft and 32 B737 MAX~~additional aircraft with deliveries between 2024 and 2025. The aircraft covered by the amendment may be assigned by Horizon to another entity. Horizon intends to take delivery of and operate all firm E175 aircraft.

Details for contractual aircraft commitments as of September 30, 2022 are outlined in the ~~remainder~~table below.


	Firm Orders	Options	Total
Aircraft Type	2022-2026	2024-2026	2022-2026
Boeing 737-8	10	—	10
Boeing 737-9	40	11	51
Boeing 737-10	6	41	47
Embraer E175	20	13	33
Total	76	65	141

The fleet commitments outlined above represent the contractual commitments as defined in Alaska's existing order with Boeing as of ~~2017 through 2023) and 23 E175 aircraft with~~September 30, 2022. Alaska has received information from Boeing indicating that certain 737 deliveries in ~~2018 through 2019, which reflects Horizon's deferral of three E175 aircraft from 2017~~2022 and 2023 are expected to ~~2018. The Company also has cancelable purchase commitments~~be delayed to 2023 and 2024. Alaska will continue to work with Boeing on delivery timelines that reflect Alaska's plans for ~~30 Airbus A320neo aircraft~~growth.

Subsequent to quarter end, Alaska executed an agreement with ~~deliveries from 2020 through 2022. In addition, the Company has~~Boeing to exercise options to purchase ~~37 B737~~52 737 aircraft for delivery between 2024 and ~~30 E175 aircraft.~~2027. The ~~cancelable~~agreement also secures rights for 105 additional aircraft through 2030. The incremental firm purchase commitments per the agreement are not contractually obligated at September 30, 2022, and ~~option payments~~ are not reflected in the future minimum payments table above.

~~Capacity Purchase Agreements ("CPAs")~~

At ~~September 30, 2017, Alaska had CPAs with~~ ~~three~~ ~~carriers, including the Company's wholly-owned subsidiary, Horizon. Horizon sells~~ ~~100%~~ of its capacity to Alaska under a CPA with Alaska. In addition, Alaska has CPAs with SkyWest to fly certain routes in the Lower 48 and Canada and with Peninsula Airways, Inc. ("PenAir") to fly certain routes in the state of Alaska. Under these agreements, Alaska pays the carriers an amount which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. Future payments (excluding Horizon) are based on minimum levels of flying by the third-party carriers, which could differ materially due to variable payments based on actual levels of flying and certain costs associated with operating flights such as fuel.

Aircraft Maintenance ~~Deposits~~

Virgin America is contractually required to make maintenance deposit payments to aircraft lessors, which represent maintenance reserves made solely to collateralize the lessor for future maintenance events should the Company not perform required maintenance. Most lease agreements provide that maintenance reserves are reimbursable upon completion of the major maintenance event in an amount equal to the lesser of (i) the amount qualified for reimbursement from maintenance reserves held by the lessor associated with the specific major maintenance event or (ii) the qualifying costs related to the specific major maintenance event.

Aircraft ~~Maintenance and Parts Management~~

~~Through its acquisition of Virgin America, the Company has a separate maintenance-cost-per-hour contract~~maintenance commitments include contractual commitments for ~~management and repair of certain rotable parts to support airframe and~~ engine maintenance ~~and repair. This agreement requires~~agreements requiring monthly payments based upon utilization, such as flight hours, cycles, and age of the ~~aircraft, and, in~~aircraft. In turn, ~~the agreement transfers~~these maintenance agreements transfer certain risks to the third-party service provider. ~~There are minimum payments under this agreement. Accordingly, payments could differ materially based on actual aircraft utilization.~~

~~Subsequent to September 30, 2017,~~ Alaska ~~entered into~~has a ~~similar~~ contract for maintenance on its ~~B737-800~~Boeing 737-800 aircraft ~~engines. Payments under this agreement are not reflected in~~engines through 2033. In the ~~table above.~~third quarter of 2022, Alaska entered into a contract for maintenance on its Boeing 737-900ER aircraft engines with minimum payments effective 2023 through 2033. Horizon has a contract for maintenance on its Embraer E175 aircraft engines through 2033.

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. ~~Plaintiffs received~~The court certified a class ~~certification~~of approximately 1,800 flight attendants in November 2016. The Company pursued numerous appeal paths following a February 2019 federal district court order against Virgin America ~~filed~~and Alaska Airlines awarding plaintiffs approximately $78 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 PAGA penalties and total judgment value. In June 2022, the U.S. Supreme Court declined to take the Company’s appeal for a ~~motion~~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 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 ~~summary judgment seeking~~$22 million in Other accrued liabilities on the condensed consolidated balance sheets. The Company is analyzing a range of potential options to ~~dismiss~~balance new compliance obligations with operational and labor considerations. Some or all ~~claims~~of these solutions may have an adverse impact on ~~various federal preemption grounds. In January 2017,~~ the ~~Court denied~~Company’s operations and financial position due in part to the unresolved conflicts between the laws and ~~granted~~federal regulations applicable to airlines.

As part of the 2016 acquisition of Virgin America, Alaska assumed responsibility for the Virgin trademark license agreement with the Virgin Group. In 2019, the Virgin Group sued Alaska in ~~part~~England, alleging that the agreement requires Alaska to pay $8 million per year as a minimum annual royalty through 2039, adjusted annually for inflation. Alaska stopped making royalty payments in 2019 after ending all use of the Virgin ~~America’s motion.~~brand. The Virgin Group asserts that payments are required without regard to actual use of the mark. A trial was held in October 2022, and a decision is expected soon. Further legal proceedings are likely to take place before the matter is resolved. The Company believes the claims in ~~this~~the case are without factual and legal merit, ~~and intends to defend this lawsuit.~~a position supported by Virgin America’s representations during pre-merger due diligence.

Management believes the ultimate disposition of these matters is not likely to materially affect the Company's financial position or results of operations. This forward-looking statement is based on management's current understanding of the relevant law and facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of arbitrators, judges and juries.

NOTE 8. SHAREHOLDERS' EQUITY

During the three months ended September 30, 2017, the Company declared and paid cash dividends of $0.30 per share, or $37 million. During the nine months ended September 30, 2017, the Company declared and paid cash dividends of $0.90 per share, or $111 million.

Common Stock Repurchase

In August 2015, the Board of Directors authorized a $1 billion share repurchase program. The ~~program was paused in~~Company repurchased 7.6 million shares for $544 million under this program. In March 2020, subject to restrictions under the ~~second quarter of 2016 in anticipation of~~Coronavirus Aid, Relief, and Economic Securities (CARES) Act, the ~~acquisition of Virgin America. The~~ Company ~~resumed~~suspended the share repurchase program indefinitely. These restrictions ended on October 1, 2022.

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 1,455,437 warrants to purchase ALK common stock in 2020 and 2021. An additional 427,080 warrants were issued in conjunction with a draw on the ~~second quarter~~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 ~~2017. As~~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 September 30, ~~2017, the Company has repurchased 4.7 million shares for $363 million under this program. Subsequent to September 30, 2017, the Company repurchased an additional 369,182 shares for $25 million.~~2022:


	Number of warrants outstanding	Strike Price
PSP 1	928,126	31.61
CARES Act loan warrants	427,080	31.61
PSP 2	305,499	52.25
PSP 3	221,812	66.39
Outstanding September 30, 2022	1,882,517

~~Share repurchase activity (in millions, except share amounts):~~

Accumulated ~~Other Comprehensive Loss~~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 nine months ended September 30, 2022:


	Marketable Securities		Employee Benefit Plan		Interest Rate Derivatives		Total
Balance at June 30, 2022, net of tax effect of $98	$	(64)	$	(251)	$	7	$	(308)
Reclassifications into earnings, net of tax impact of $0	2		1		—		3
Change in value, net of tax impact of $6	(28)		—		5		(23)
Balance at September 30, 2022, net of tax effect of $104	$	(90)	$	(250)	$	12	$	(328)

Balance at December 31, 2021, net of tax effect of $83	$	(4)	$	(252)	$	(6)	$	(262)
Reclassifications into earnings, net of tax impact of $1	6		2		—		8
Change in value, net of tax impact of $20	(92)		—		18		(74)
Balance at September 30, 2022, net of tax effect of $104	$	(90)	$	(250)	$	12	$	(328)

September 30, 2017 December 31, 2016
Marketable securities $ —
$ (3 )
Employee benefit plans (287 ) (299 )
Interest rate derivatives (2 ) (3 )
Total $ (289 ) $ (305 )

Earnings Per Share ~~("EPS")~~(EPS)

Diluted EPS is calculated by dividing net income by the average number of common shares outstanding plus the number of additional common shares that would have been outstanding assuming the exercise of in-the-money stock options, ~~and~~ restricted stock units, and warrants, using the treasury-stock method. For the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~,September 30, 2021, anti-dilutive shares excluded from the calculation of EPS were not material.

NOTE 9. OPERATING SEGMENT INFORMATION

Alaska Air Group has ~~three~~two operating ~~airlines—~~airlines – Alaska ~~Virgin America~~ and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon ~~as well as with third-party carriers~~and SkyWest, ~~and PenAir,~~ 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")~~(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 ~~Alaska's and Virgin America’s~~ 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 ~~Cuba.~~

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 ~~CPAs.~~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~~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 September 30, 2022
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	2,217	$	398	$	—	$	—	$	2,615		$	—	$	2,615
CPA revenues	—		—		93		(93)		—			—		—
Mileage Plan other revenue	133		13		—		—		146			—		146
Cargo and other	65		—		—		2		67			—		67
Total Operating Revenues	2,415		411		93		(91)		2,828			—		2,828
Operating Expenses
Operating expenses, excluding fuel	1,352		292		94		(94)		1,644			245		1,889
Fuel expense	625		121		—		—		746			131		877
Total Operating Expenses	1,977		413		94		(94)		2,390			376		2,766





Non-operating Income (Expense)	8		—		(5)		—		3			—		3
Income (Loss) Before Income Tax	$	446	$	(2)	$	(6)	$	3	$	441		$	(376)	$	65
Pretax Margin									15.6		%			2.3		%

	Three Months Ended September 30, 2021
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	1,425	$	349	$	—	$	—	$	1,774		$	—	$	1,774
CPA revenues	—		—		107		(107)		—			—		—
Mileage Plan other revenue	105		15		—		—		120			—		120
Cargo and other	58		—		—		1		59			—		59
Total Operating Revenues	1,588		364		107		(106)		1,953			—		1,953
Operating Expenses
Operating expenses, excluding fuel	1,060		288		93		(113)		1,328			(9)		1,319
Fuel expense	299		77		—		—		376			—		376
Total Operating Expenses	1,359		365		93		(113)		1,704			(9)		1,695





Non-operating Income (Expense)	(8)		—		(6)		1		(13)			—		(13)
Income (Loss) Before Income Tax	$	221	$	(1)	$	8	$	8	$	236		$	9	$	245
Pretax Margin									12.1		%			12.5		%

Three Months Ended September 30, 2017
Mainline Regional Horizon
Consolidating & Other^(a)

Air Group Adjusted^(b)

Special Items^(c)
Consolidated
Operating revenues
Passenger
Mainline $ 1,562
$ —
$ —
$ —
$ 1,562
$ —
$ 1,562
Regional —
262
—
—
262
—
262
Total passenger revenues 1,562
262
—
—
1,824
—
1,824
CPA revenues —
—
112
(112 ) —
—
—
Freight and mail 30
1
1
—
32
—
32
Other—net 242
21
1
—
264
—
264
Total operating revenues 1,834
284
114
(112 ) 2,120
—
2,120
Operating expenses
Operating expenses, excluding fuel 1,077
219
105
(112 ) 1,289
24
1,313
Economic fuel 328
45
—
—
373
(5 ) 368
Total operating expenses 1,405
264
105
(112 ) 1,662
19
1,681
Nonoperating income (expense)
Interest income 11
—
—
(2 ) 9
—
9
Interest expense (23 ) —
(4 ) 1
(26 ) —
(26 )
Other 5
—
—
—
5
—
5
Total Nonoperating income (expense) (7 ) —
(4 ) (1 ) (12 ) —
(12 )
Income (loss) before income tax $ 422
$ 20
$ 5
$ (1 ) $ 446
$ (19 ) $ 427

Three Months Ended September 30, 2016
Mainline Regional Horizon
Consolidating & Other^(a)

Air Group Adjusted^(b)

Special Items^(c)
Consolidated
Operating revenues
Passenger
Mainline $ 1,073
$ —
$ —
$ —
$ 1,073
$ —
$ 1,073
Regional —
249
—
—
249
—
249
Total passenger revenues 1,073
249
—
—
1,322
—
�� 1,322
CPA revenues —
—
109
(109 ) —
—
—
Freight and mail 30
1
—
—
31
—
31
Other—net 190
21
1
1
213
—
213
Total operating revenues 1,293
271
110
(108 ) 1,566
—
1,566
Operating expenses
Operating expenses, excluding fuel 727
202
99
(109 ) 919
22
941
Economic fuel 188
34
—
—
222
3
225
Total operating expenses 915
236
99
(109 ) 1,141
25
1,166
Nonoperating income (expense)
Interest income 7
—
—
—
7
—
7
Interest expense (7 ) —
(2 ) (2 ) (11 ) —
(11 )
Other 5
—
—
1
6
—
6
Total Nonoperating income (expense) 5
—
(2 ) (1 ) 2
—
2
Income (loss) before income tax $ 383
$ 35
$ 9
$ —
$ 427
$ (25 ) $ 402


	Nine Months Ended September 30, 2022
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	5,488	$	1,056	$	—	$	—	$	6,544		$	—	$	6,544
CPA revenues	—		—		288		(288)		—			—		—
Mileage Plan other revenue	392		41		—		—		433			—		433
Cargo and other	186		—		—		4		190			—		190
Total Operating Revenues	6,066		1,097		288		(284)		7,167			—		7,167
Operating Expenses
Operating expenses, excluding fuel	3,808		843		291		(288)		4,654			466		5,120
Fuel expense	1,623		313		—		—		1,936			64		2,000
Total Operating Expenses	5,431		1,156		291		(288)		6,590			530		7,120





Non-operating Income (Expense)	12		—		(15)		—		(3)			—		(3)
Income (Loss) Before Income Tax	$	647	$	(59)	$	(18)	$	4	$	574		$	(530)	$	44
Pretax Margin									8.0		%			0.6		%

	Nine Months Ended September 30, 2021
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	3,003	$	782	$	—	$	—	$	3,785		$	—	$	3,785
CPA revenues	—		—		322		(322)		—			—		—
Mileage Plan other revenue	287		45		—		—		332			—		332
Cargo and other	157		—		—		3		160			—		160
Total Operating Revenues	3,447		827		322		(319)		4,277			—		4,277
Operating Expenses
Operating expenses, excluding fuel	2,937		839		272		(349)		3,699			(921)		2,778
Fuel expense	726		195		—		—		921			(68)		853
Total Operating Expenses	3,663		1,034		272		(349)		4,620			(989)		3,631





Non-operating Income (Expense)	(31)		—		(16)		1		(46)			—		(46)
Income (Loss) Before Income Tax	$	(247)	$	(207)	$	34	$	31	$	(389)		$	989	$	600
Pretax Margin									(9.1)		%			14.0		%

(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.

Consolidating & Other^(a)

Air Group Adjusted^(b)

Consolidating & Other^(a)

Air Group Adjusted^(b)

Total assets were as follows (in millions):


	September 30, 2022		December 31, 2021
Mainline	$	20,065	$	19,258
Horizon	1,115		1,212
Consolidating & Other	(6,649)		(6,519)
Consolidated	$	14,531	$	13,951

September 30, 2017 December 31, 2016
Mainline $ 16,382
$ 15,260
Horizon 914
690
Consolidating & Other (6,557 ) (5,988 )
Consolidated $ 10,739
$ 9,962

~~NOTE 10. SUBSEQUENT EVENTS~~

~~On October 30, 2017, the Company received a final decision from a third-party arbitration panel on increased wage rates and retirement contributions for pilots of Alaska Airlines and Virgin America.~~



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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~("MD&A")~~(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, ~~2016~~.2021. This overview summarizes the MD&A, which includes the following sections:

•Third Quarter Review—highlights from the third quarter of ~~2017~~2022 outlining some of the major events that ~~happened~~occurred during the period and how they affected our financial performance.

•Results of Operations—an in-depth analysis of our ~~revenues~~revenue by segment and our expenses from a consolidated perspective for the three and nine months ended September 30, ~~2017~~.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. As Virgin America was acquired on December 14, 2016, its financial and operational results are reflected in the three and nine months ended September 30, 2017 but not in the comparative prior period. However, for comparability purposes, we have added "Combined Comparative" information for the prior year, which is more fully described below. This section includes forward-looking statements regarding our view of the remainder of ~~2017.~~

2022.

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

THIRD QUARTER REVIEW

~~Our~~Third Quarter Results

We recorded consolidated pretax income ~~was $427 million during~~for the third quarter of ~~2017,~~2022 under GAAP of $65 million, compared to ~~$402~~consolidated pretax income of $245 million in the third quarter of ~~2016. The increase in~~2021. On an adjusted basis, we reported consolidated pretax income for the quarter of $441 million, compared to consolidated pretax income of ~~$25~~$236 million in the same period of 2021. Strong demand for passenger air travel combined with excellent operational performance enabled Air Group to deliver record breaking quarterly revenue in the third quarter.

In the third quarter non-fuel operating expense, excluding special items, increased 24% over the prior year period. The increase was ~~primarily~~ driven by ~~an increase in revenues of $554 million, partially offset~~incremental departure related costs on 13% more flown capacity, as well as higher wages and training costs. Costs were also pressured by ~~a $372 million increase in non-fuel expense and a $143 million increase in fuel expense.~~

~~As we completed the acquisition of Virgin America on December 14, 2016, our results of operations for the three months ended September 30, 2017 include those of Virgin America and~~ the impact of ~~purchase accounting. Our results~~new labor agreements, elevated staff levels relative to our level of ~~operations~~flying, and a one-time charge of $28 million associated with gifting each of our employees 90,000 Mileage Plan miles. Fuel costs remain elevated, resulting in a 133% increase over the prior year period. Although our hedging program provided a benefit of $29 million for the ~~three months ended September 30, 2016 do not include those~~quarter, total fuel cost exceeded 2021 levels due primarily to a 79% increase in economic price per gallon. We also incurred special charges of ~~Virgin America.~~$245 million, including $155 million related to our Airbus and Q400 fleet transitions and $90 million in ratification bonuses from the new collective bargaining agreement with Alaska pilots.

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.

~~Operations Performance~~

During the third quarter, we reached three new labor agreements. In August 2022, Alaska's employees represented by the International Association of ~~2017, our on-time performance~~Machinists and Aerospace Workers ratified a two-year contract extension that includes increased pay with added steps to ensure wage rates remain competitive. In September 2022, Horizon pilots represented by the International Brotherhood of Teamsters ratified an agreement that includes increased pay and improved benefits designed to improve pilot retention. In September 2022, Alaska pilots represented by the Air Line Pilots Association reached a tentative agreement for a new contract with management. The agreement was ~~85.0% for Alaska, 73.3% for Virgin America~~ratified subsequent to quarter end in October 2022. The

new agreement includes increased pay and ~~78.6% for Horizon. Air traffic control issues~~benefits as well as improvements to job security and ~~airport runway construction have negatively impacted our on-time performance, particularly~~scheduling. Also in ~~Seattle, Los Angeles, and San Francisco where we have a large concentration of flights. While these challenges negatively impact all airlines that operate~~October 2022, the Company opened negotiations with Alaska's flight attendants, whose contract becomes amendable in the affected markets, we plan to continue working to mitigate the impact in 2018. Additionally, pilot shortages at Horizon resulted in approximately 1,300 canceled flights and a reduction in scheduled service into the fourth quarter and early 2018. December 2022.

As a result of these ~~adjustments to the flight schedule and our recent pilot hiring efforts,~~new agreements, we ~~anticipate that operational headwinds will be behind us by year end.~~

~~We launched 20 new routes during the quarter, which is the most we have ever launched~~recorded $35 million in one quarter. In total, we have announced approximately 40 new markets since the acquisition of Virgin America as we begin to realize the network and revenue synergies from bringing our two airlines together.

~~Shareholder Return~~

~~During the~~ ~~third~~ ~~quarter of~~ ~~2017, we paid cash dividends of $37 million and repurchased 355,415 shares for $28 million. Subsequent to September 30, 2017, we repurchased an~~ additional ~~369,182 shares for $25 million.~~

Each of our represented groups, other than aircraft technicians, has been certified by the National Mediation Board as having single carrier status which allows for Virgin America teammates to be represented by unions that currently represent Alaska's work groups and enables work toward single collective bargaining agreements.

We were not able to come to an agreement during negotiations or mediation with our pilots, so Alaska and the Air Line Pilots Association presented their respective positions to a third-party arbitration panel duringcosts in the third ~~quarter. On October 30, 2017, we received a decision from the arbitration panel on new~~quarter due to increased wage rates and ~~retirement contributions~~improvements to a slate of benefits. For the fourth quarter, we expect to record additional costs between $55 million and $60 million.

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 Gevo Inc. to purchase 185 million gallons of SAF to be delivered over the five year term of the agreement beginning in 2026. We also launched a new initiative in partnership with Microsoft, Boeing, and Washington State University to expand the use of SAF in business travel and increase education on sustainable travel topics.

Delivering on our diversity, equity, and inclusion goals is critical to our long-term success. As a reflection of our commitment to these goals, we have tied a portion of long-term executive compensation to achievement of diversity goals. Additionally, we have incorporated a carbon emissions target into our company-wide Performance Based Pay Plan, which is currently tracking to maximum achievement.

We remain committed to our transition to a single fleet for ~~pilots of Alaska Airlines~~both our mainline and ~~Virgin America. This award~~regional operations, which will best position our airlines for long-term sustainable growth. In working toward this goal, our capacity for the fourth quarter is ~~binding~~expected to be temporarily constrained as we focus on pilot transition training. As a result, we anticipate capacity for the fourth quarter to be down 7% to 10% versus 2019, with full year capacity down 8% to 9%. Lower capacity, coupled with pressures from wages and training costs, has shifted our expectation for fourth quarter CASMex to be up 20% to 23% over 2019. Continued strength in the demand environment is ~~effective November 1, 2017. The wage rates equate~~expected to an approximately 33% increase for top-of-scale captains at Virgin America and approximately 16% for top-of-scale captains at Alaska Airlines with a 3% increase in rates effective April 1, 2018 and April 1, 2019.

~~The decision increases contribution rates for pilots in defined contribution only retirement plans from 13.5% at Alaska and~~generate revenue 12% ~~at Virgin America~~ to 15% ~~effective immediately and~~over 2019 levels. For the full year, we continue to ~~15.5% effective January 1, 2019.~~anticipate adjusted pretax margins will range between 6% to 9%.

~~We estimate the impact of this new contract over the status quo~~Our plans will continue to be ~~an incremental cost of approximately $24 million~~responsive to emerging information and the guidance we have provided above is subject to greater uncertainty than we have historically experienced. As we leverage our network, Mileage Plan program, and fleet for growth, our people are focused on keeping costs low and running a strong operation. These are competitive advantages we have cultivated over many years that will continue to serve us in the remainder of ~~2017, $150 million in 2018,~~2022 and ~~$180 million in 2019. Over the life of the contract, the average annualized impact is approximately $160 million to $165 million compared to the $140 million estimate of our proposal at arbitration.~~beyond.

We completed the acquisition of Virgin America on December 14, 2016, positioning us as the fifth largest airline in the U.S. with a unique ability to serve West Coast travelers. The acquisition of Virgin America provides a platform for growth of our low-fare, premium product, a powerful West Coast network for our guests and enhanced international partnerships. Additionally, Virgin America provides access to constrained gates, particularly on the East Coast, creating increased utility for our guests.

We are focused on the successful integration of Virgin America, which includes obtaining a Single Operating Certificate ("SOC") in early 2018 and a single Passenger Service System ("PSS"), or more commonly known as the reservations system, in the second quarter of 2018. The single PSS has been accelerated from later in 2018 and is expected to bring forward approximately $20 million of revenue synergies into 2018. Our priority throughout the integration process is to run our airlines well and maintain a safe, compliant and low-cost operation, while providing a remarkable experience for our guests. The combined airline will adopt Alaska’s name and logo, retiring the Virgin America name sometime in late 2019. Over the next several months we will focus on enhancing our guest experience and will adopt certain aspects of Virgin America’s brand elements, including enhanced inflight connectivity, inflight entertainment content, mood lighting, music and the relentless desire to make flying a different experience for guests. We will continue to enhance our fresh, healthy, West Coast-inspired onboard food and beverage menus and expect our First Class guests on Alaska will be able to pre-select meals before they fly starting this year. Alaska’s main cabin guests will also be able to pre-pay for their meals in advance in 2018, with Airbus flights soon to follow. Our onboard Free Chat service and free entertainment was added to Airbus flights in August 2017. We also plan to expand the premium class offering on our Airbus fleet beginning in 2018 and have our entire fleet equipped with high-speed satellite Wi-Fi by early 2020.

In January 2018, Alaska Mileage Plan™ will become our sole loyalty program, offering guests more rewards, an expansive global partner network and the only major airline loyalty program that still rewards a mile flown with a mile earned on Alaska and Virgin America flights.

We intend to minimize any disruption to our guests during the integration efforts by being transparent about the progress we are making and how the changes may affect them. Employee engagement throughout the integration will remain a top priority as well, ensuring that employees remain engaged, informed and excited about the changes. We remain focused on capturing the value and synergies created by combining these two great airlines.

Currently, we expect to grow our combined network capacity in 2017 by 7.2%. The growth rate compares 2017 system-wide capacity to historical Air Group and Virgin America combined capacity in 2016. Current schedules indicate competitive capacity will increase by approximately 5% in the fourth quarter of 2017, and approximately 9% in the first quarter of 2018. We believe that our product, our operation, our low-cost structure, our engaged employees, our award-winning service, and our award-winning Mileage Plan™ program, combined with our strong balance sheet, give us the ability to compete effectively in our markets.

Our current expectations for capacity and CASM excluding fuel and special items for the remainder of 2017 are summarized below. These expectations are from a "Combined Comparative" perspective, calculated as the sum of historical results for Alaska Air Group and Virgin America for the 2016 comparative periods:

Q4 2016 Combined Comparative^(a)

Cost per ASM excluding fuel and special items (cents)

2016 Combined Comparative^(a)

We currently expect capacity growth of approximately 8% for the full year 2018. We expect unit costs to increase in 2018. This increase is driven by increases in pilot wages as a result of the pilot arbitration decision, a new engine services deal, our growing mix of regional flying, and continued costs associated with the integration.

RESULTSOF OPERATIONS

ADJUSTED (NON-GAAP) RESULTS ANDPER-SHARE AMOUNTS

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

•By excluding fuel expense and certain other items, such as the Payroll Support Program grant wage offset and other special items, ~~(including merger-related costs)~~ from our unit metrics, we believe ~~it provides management~~that we have better visibility into the results of operations ~~and our non-fuel cost initiatives.~~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 ~~labor rates and~~ productivity, airport costs, maintenance costs, etc., which are more controllable by management.

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

Adjusted income before income tax and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan, which covers the majority of Air Group employees.

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

•Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of ~~certain~~these items ~~such~~ as ~~merger-related costs and mark-to-market hedging adjustments,~~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 ~~passenger~~ 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,~~nonrecurring, infrequent, or unusual in nature.

OPERATING STATISTICS SUMMARY (unaudited)

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


	Three Months Ended September 30,			Nine Months Ended September 30,
	2022	2021	Change	2022	2021	Change
Consolidated Operating Statistics:(a)
Revenue passengers (000)	11,437	9,832	16.3%	31,137	23,211	34.1%
RPMs (000,000) "traffic"	14,143	11,592	22.0%	38,475	27,319	40.8%
ASMs (000,000) "capacity"	16,349	14,429	13.3%	45,743	38,238	19.6%
Load factor	86.5%	80.3%	6.2 pts	84.1%	71.4%	12.7 pts
Yield	18.48¢	15.30¢	20.8%	17.01¢	13.85¢	22.8%
RASM	17.30¢	13.54¢	27.8%	15.67¢	11.19¢	40.0%
CASM excluding fuel and special items(b)	10.05¢	9.21¢	9.1%	10.17¢	9.67¢	5.2%
Economic fuel cost per gallon(b)	$3.66	$2.05	78.5%	$3.38	$1.93	75.1%
Fuel gallons (000,000)	204	183	11.5%	573	477	20.1%
ASMs per fuel gallon	80.1	78.8	1.6%	79.8	80.2	(0.5)%
Average full-time equivalent employees (FTEs)	22,878	20,315	12.6%	22,354	18,819	18.8%
Mainline Operating Statistics:
Revenue passengers (000)	8,671	7,065	22.7%	23,557	16,367	43.9%
RPMs (000,000) "traffic"	12,846	10,122	26.9%	34,818	23,677	47.1%
ASMs (000,000) "capacity"	14,782	12,540	17.9%	41,221	33,004	24.9%
Load factor	86.9%	80.7%	6.2 pts	84.5%	71.7%	12.8 pts
Yield	17.26¢	14.08¢	22.6%	15.76¢	12.68¢	24.3%
RASM	16.34¢	12.66¢	29.1%	14.72¢	10.44¢	41.0%
CASM excluding fuel and special items(b)	9.15¢	8.45¢	8.3%	9.24¢	8.90¢	3.8%
Economic fuel cost per gallon(b)	$3.61	$2.03	77.8%	$3.35	$1.91	75.4%
Fuel gallons (000,000)	173	147	17.7%	484	380	27.4%
ASMs per fuel gallon	85.4	85.3	0.1%	85.2	86.9	(2.0)%
Average FTEs	17,453	15,116	15.5%	17,035	13,870	22.8%
Aircraft utilization	10.5	10.2	2.9%	10.4	9.6	8.3%
Average aircraft stage length	1,347	1,313	2.6%	1,348	1,313	2.7%
Operating fleet(d)	232	210	22 a/c	232	210	22 a/c
Regional Operating Statistics:(c)
Revenue passengers (000)	2,767	2,767	—%	7,579	6,843	10.8%
RPMs (000,000) "traffic"	1,297	1,470	(11.8)%	3,657	3,642	0.4%
ASMs (000,000) "capacity"	1,567	1,889	(17.0)%	4,522	5,235	(13.6)%
Load factor	82.8%	77.8%	5.0 pts	80.9%	69.6%	11.3 pts
Yield	30.69¢	23.72¢	29.4%	28.88¢	21.47¢	34.5%
RASM	26.23¢	19.26¢	36.2%	24.26¢	15.80¢	53.5%
Operating fleet(d)	94	94	— a/c	94	94	— 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 ~~acquisition closed on December 14, 2016, Consolidated~~most directly related GAAP measure in the accompanying pages.

(c)Data presented includes information related to flights operated by Horizon and ~~Mainline amounts presented below include Virgin America results for the three and nine months ended~~third-party carriers.

(d)Reflects all aircraft in operating service at September 30, ~~2017~~2022.

Given the unusual nature of 2021 and ~~not for the prior period.~~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)
Alaska Air Group, Inc.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2019		Change	2022		2019		Change
Passenger revenue	$	2,615	$	2,211	18%	$	6,544	$	6,038	8%
Mileage plan other revenue	146		118		24%	433		346		25%
Cargo and other	67		60		12%	190		169		12%
Total operating revenue	$	2,828	$	2,389	18%	$	7,167	$	6,553	9%

Operating expense, excluding fuel and special items	$	1,644	$	1,476	11%	$	4,654	$	4,295	8%
Aircraft fuel, including hedging gains and losses	877		486		80%	2,000		1,408		42%
Special items	245		5		NM	466		39		NM
Total operating expenses	$	2,766	$	1,967	41%	$	7,120	$	5,742	24%

Total non-operating income (expense)	3		(6)		(150)%	(3)		(38)		(92)%
Income before income tax	$	65	$	416	(84)%	$	44	$	773	(94)%

Consolidated Operating Statistics:
Revenue passengers (000)	11,437		12,574		(9)%	31,137		35,018		(11)%
RPMs (000,000) "traffic"	14,143		15,026		(6)%	38,475		42,113		(9)%
ASMs (000,000) "capacity"	16,349		17,519		(7)%	45,743		50,006		(9)%
Load Factor	86.5%		85.8%		0.7 pts	84.1%		84.2%		(0.1) pts
Yield	18.48¢		14.71¢		26%	17.01¢		14.34¢		19%
RASM	17.30¢		13.64¢		27%	15.67¢		13.10¢		20%
CASMex	10.05¢		8.43¢		19%	10.17¢		8.59¢		18%
FTEs	22,878		22,247		3%	22,354		22,000		2%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016
Change^(d)
2017 2016
Change^(d)
Consolidated Operating Statistics:^(a)

Revenue passengers (000) 11,645 9,054 28.6% 33,063 25,536 29.5%
RPMs (000,000) "traffic" 13,811 9,601 43.8% 39,073 27,569 41.7%
ASMs (000,000) "capacity" 16,164 11,212 44.2% 46,170 32,728 41.1%
Load factor 85.4% 85.6% (0.2) pts 84.6% 84.2% 0.4 pts
Yield 13.21¢ 13.77¢ (4.1)% 13.09¢ 13.49¢ (3.0)%
PRASM 11.29¢ 11.79¢ (4.2)% 11.08¢ 11.36¢ (2.5)%
RASM 13.12¢ 13.97¢ (6.1)% 12.93¢ 13.47¢ (4.0)%
CASM excluding fuel and special items^(b)
7.98¢ 8.20¢ (2.7)% 8.09¢ 8.16¢ (0.9)%
Economic fuel cost per gallon^(b)
$1.80 $1.58 13.9% $1.76 $1.47 19.7%
Fuel gallons (000,000) 207 140 47.9% 592 410 44.4%
ASMs per fuel gallon 78.1 80.1 (2.5)% 78.0 79.8 (2.3)%
Average full-time equivalent employees (FTEs) 20,743 14,674 41.4% 19,723 14,500 36.0%
Mainline Operating Statistics:
Revenue passengers (000) 9,142 6,507 40.5% 25,875 18,432 40.4%
RPMs (000,000) "traffic" 12,694 8,595 47.7% 36,046 24,767 45.5%
ASMs (000,000) "capacity" 14,796 9,987 48.2% 42,398 29,216 45.1%
Load factor 85.8% 86.1% (0.3) pts 85.0% 84.8% 0.2 pts
Yield 12.31¢ 12.49¢ (1.4)% 12.18¢ 12.26¢ (0.7)%
PRASM 10.56¢ 10.75¢ (1.8)% 10.36¢ 10.39¢ (0.3)%
RASM 12.40¢ 12.96¢ (4.3)% 12.22¢ 12.53¢ (2.5)%
CASM excluding fuel and special items^(b)
7.28¢ 7.28¢ —% 7.32¢ 7.21¢ 1.5%
Economic fuel cost per gallon^(b)
$1.79 $1.57 14.0% $1.76 $1.46 20.5%
Fuel gallons (000,000) 183 119 53.8% 526 350 50.3%
ASMs per fuel gallon 80.9 83.9 (3.6)% 80.6 83.5 (3.5)%
Average FTEs 15,862 11,397 39.2% 15,439 11,260 37.1%
Aircraft utilization 11.4 10.6 7.5% 11.1 10.7 3.7%
Average aircraft stage length 1,300 1,203 8.1% 1,296 1,218 6.4%
Operating fleet 218 154 64 a/c 218 154 64 a/c
Regional Operating Statistics:^(c)

Revenue passengers (000) 2,503 2,547 (1.7)% 7,188 7,105 1.2%
RPMs (000,000) "traffic" 1,117 1,006 11.0% 3,027 2,801 8.1%
ASMs (000,000) "capacity" 1,368 1,225 11.7% 3,772 3,512 7.4%
Load factor 81.7% 82.1% (0.4 pts) 80.2% 79.8% 0.4 pts
Yield 23.48¢ 24.75¢ (5.1)% 23.95¢ 24.35¢ (1.6)%
PRASM 19.17¢ 20.32¢ (5.7)% 19.22¢ 19.43¢ (1.1)%
Operating fleet 83 69 14 a/c 83 69 14 a/c

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, ~~2017~~2022 TO THREE MONTHS ENDED SEPTEMBER 30, ~~2016~~2021

Our consolidated net income for the three months ended September 30, ~~2017~~2022 was ~~$266~~$40 million, or ~~$2.14~~$0.31 per ~~diluted~~ share, compared to a consolidated net income of ~~$256~~$194 million, or ~~$2.07~~$1.53 per ~~diluted~~ share, for the three months ended September 30, 2016. As the acquisition of Virgin America closed on December 14, 2016, our financial results include results of Virgin America for the three months ended September 30, 2017, but not for the comparable prior period.2021.

Excluding the impact of ~~merger-related costs~~special items and mark-to-market fuel hedge adjustments, our adjusted net income for the third quarter of ~~2017~~2022 was ~~$278~~$325 million, or ~~$2.24~~$2.53 per ~~diluted~~ share, compared to an adjusted net income of ~~$272~~$187 million, or ~~$2.20~~$1.47 per ~~diluted~~ share, in the third quarter of ~~2016.~~2021. The following ~~tables reconcile~~table reconciles our adjusted net income ~~and adjusted earnings~~ per ~~diluted~~ share ~~("EPS")~~(EPS) to amounts as reported in accordance with GAAP:


	Three Months Ended September 30,
	2022				2021
(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income per share	$	40	$	0.31	$	194	$	1.53

Mark-to-market fuel hedge adjustments	131		1.02		—		—
Special items - fleet transition	155		1.21		(9)		(0.07)


Special items - labor ratification bonus	90		0.70		—		—
Income tax effect of reconciling items above	(91)		(0.71)		2		0.01
Non-GAAP adjusted net income per share	$	325	$	2.53	$	187	$	1.47

Three Months Ended September 30,
2017 2016
(in millions, except per share amounts) Dollars Diluted EPS Dollars Diluted EPS
Reported GAAP net income and diluted EPS $ 266
$ 2.14
$ 256
$ 2.07
Mark-to-market fuel hedge adjustments (5 ) (0.04 ) 3
0.02
Special items—merger-related costs 24
0.20
22
0.18
Income tax effect on special items and fuel hedge adjustments (7 ) (0.06 ) (9 ) (0.07 )
Non-GAAP adjusted net income and diluted EPS $ 278
$ 2.24
$ 272
$ 2.20

CASM excluding fuel and special items reconciliation is summarized below:


	Three Months Ended September 30,
(in cents)	2022		2021		% Change
Consolidated:
CASM	16.91	¢	11.75	¢	44	%
Less the following components:

Aircraft fuel, including hedging gains and losses	5.36		2.60		106	%
Special items - fleet transition	0.95		(0.06)		NM
Special items - labor ratification bonus	0.55		—		NM


CASM excluding fuel and special items	10.05	¢	9.21	¢	9	%

Mainline:
CASM	16.20	¢	10.77	¢	50	%
Less the following components:

Aircraft fuel, including hedging gains and losses	5.52		2.39		131	%

Special items - fleet transition	0.92		(0.07)		NM
Special items - labor ratification bonus	0.61		—		NM


CASM excluding fuel and special items	9.15	¢	8.45	¢	8	%

Three Months Ended September 30,
(in cents) 2017 2016 % Change
Consolidated:
CASM
10.40 ¢
10.40 ¢ — %
Less the following components:

Aircraft fuel, including hedging gains and losses 2.27
2.01
12.9 %
Special items—merger-related costs 0.15
0.19
(21.1 )%
CASM excluding fuel and special items
7.98 ¢
8.20 ¢ (2.7 )%

Mainline:
CASM
9.63 ¢
9.41 ¢ 2.3 %
Less the following components:

Aircraft fuel, including hedging gains and losses 2.19
1.91
14.7 %
Special items—merger-related costs 0.16
0.22
(27.3 )%
CASM excluding fuel and special items
7.28 ¢
7.28 ¢ — %
OPERATING REVENUE

We believe that analysis of specific financial and operational results on a combined basis provides more meaningful year-over-year comparisons. The discussion below includes "Combined Comparative" results for the three months ended September 30, 2016~~, determined as the sum~~ of the historical consolidated results of Air Group and of Virgin America. Virgin America's financial information has been conformed to reflect Air Group's historical financial statement presentation. This information does not purport to reflect what our financial and operational results would have been had the acquisition been consummated at the beginning of the periods presented.

~~COMBINED COMPARATIVE OPERATING STATISTICS~~

~~COMBINED COMPARATIVE OPERATING REVENUES~~

Total operating ~~revenues~~ revenue increased ~~$554~~ $875 million, or ~~35%~~45%, during the third quarter of ~~2017~~2022 compared to the same period in ~~2016. On a Combined Comparative basis, total operating revenues increased $108 million or 5%.~~2021. The changes ~~including the reconciliation of the impact of Virgin America on the comparative results,~~ are summarized in the following table:


	Three Months Ended September 30,
(in millions)	2022		2021		% Change
Passenger revenue	$	2,615	$	1,774	47	%
Mileage Plan other revenue	146		120		22	%
Cargo and other	67		59		14	%
Total operating revenue	$	2,828	$	1,953	45	%

Three Months Ended September 30, Change
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Combined % Combined
Passenger
Mainline $ 1,562
$ 1,073
$ 402
$ 1,475
$ 87
5.9 %
Regional 262
249
—
249
13
5.2 %
Total passenger revenue 1,824
1,322
402
1,724
100
5.8 %
Freight and mail 32
31
—
31
1
3.2 %
Other—net 264
213
44
257
7
2.7 %
Total operating revenues $ 2,120
$ 1,566
$ 446
$ 2,012
$ 108
5.4 %

Passenger ~~Revenue—Mainline~~revenue

On a consolidated basis, ~~Mainline passenger~~Passenger revenue for the third quarter of ~~2017~~2022 increased by ~~$489~~$841 million, or ~~46%~~47%, ondriven by a ~~48%~~22% increase in passenger traffic and a 21% improvement in ticket yields. Increased demand for air travel and constrained capacity ~~driven by~~industry wide enabled higher load factors in the ~~acquisition~~third quarter of ~~Virgin America, partially offset by a 2% decrease in unit revenues.~~ 2022. Higher revenue on improved Mileage Plan award redemptions and from our alliance partners following the relaxing of international travel restrictions also contributed meaningfully to revenue growth compared to 2021.

Mileage Plan other revenue

On a ~~Combined Comparative~~consolidated basis, ~~Mainline passenger~~Mileage Plan other revenue for the third quarter of ~~2017~~2022 increased by ~~6%,~~$26 million, or 22%. The change is largely due to ~~a 7%~~an increase in ~~capacity, slightly offset by a 1% decrease in unit revenues compared to the combined third quarter of 2016. The increase in capacity was~~commissions from our bank card partners driven by increased consumer spending and improved economics from our ~~continued network expansion~~new co-branded credit card agreement.

Cargo and ~~aircraft added to our fleet since~~other

On a consolidated basis, Cargo and other revenue for the third quarter of ~~2016. The decrease~~2022 increased by $8 million, or 14%. Other ancillary revenue was the primary driver of the year-over-year increase, consistent with the return in ~~PRASM was driven by decreased load factors coupled with lower ticket yields. The lower yields were impacted by our new market growth and by competitor pricing actions felt more acutely~~demand for travel. Incremental freight revenue also contributed due to greater use of belly capacity, which grew on an increase in ~~our California markets.~~scheduled departures.

~~Passenger Revenue—Regional~~OPERATING EXPENSES

~~Regional passenger revenue~~Total operating expenses increased 5%$1.1 billion, or 63%, compared to the third quarter of 2016 primarily, driven by a 12% increase in capacity. The increase in capacity was offset by a 6% decrease in PRASM. The decrease in Regional PRASM was largely driven by growth and competitive pricing actions. The operational challenges at Horizon, due in large part to a shortage of pilot

s, resulted in a significant number of flight cancellations that led us to either refund or re-accommodate passengers. We estimate these cancellations resulted in lost revenues for Air Group of approximately $25 million to $30 million.

~~Other—Net~~

Other—net revenue increased $51 million, or 24%, from the third quarter of 2016. Frequent flyer revenue contributed $15 million of the increase, primarily driven by a significant increase in miles sold to our affinity credit card partner in the Mileage Plan program. The remainder of the increase was due to higher ancillary revenues. On a Combined Comparative basis, Other—net revenue increased $7 million, or 3%.

~~COMBINED COMPARATIVE OPERATING EXPENSES~~

~~Total operating expenses increased $515 million, or 44%, compared to the~~ ~~third~~ ~~quarter of~~ ~~2016. On a Combined Comparative basis, total operating expenses increased $159 million, or 10%.~~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 September 30,
(in millions)	2022		2021		% Change
Fuel expense	$	877	$	376	133	%
Non-fuel operating expenses, excluding special items	1,644		1,328		24	%

Special items - fleet transition	155		(9)		NM
Special items - labor ratification bonus	90		—		NM


Total operating expenses	$	2,766	$	1,695	63	%

Three Months Ended September 30, Change
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Combined % Combined
Fuel expense $ 368
$ 225
$ 81
$ 306
$ 62
20.3 %
Non-fuel expenses 1,289
919
273
1,192
97
8.1 %
Special items—merger-related costs 24
22
2
24
—
— %
Total operating expenses $ 1,681
$ 1,166
$ 356
$ 1,522
$ 159
10.4 %

Fuel ~~Expense~~expense

Aircraft fuel expense includes ~~both~~ raw fuel expense (as defined below) plus the effect of mark-to-market adjustments to our fuel hedge portfolio ~~included in our consolidated statement of operations~~ 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 ~~$143~~$501 million, or ~~64%~~133%, compared to the third quarter of ~~2016. On a Combined Comparative basis, aircraft fuel expense increased $62 million or 20%.~~2021. The elements of the change are illustrated in the following table:


	Three Months Ended September 30,
	2022				2021
(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	$	775	$	3.80	$	397	$	2.16
(Gain)/loss on settled hedges	(29)		(0.14)		(21)		(0.11)
Consolidated economic fuel expense	$	746	$	3.66	$	376	$	2.05
Mark-to-market fuel hedge adjustments	131		0.64		—		—
GAAP fuel expense	$	877	$	4.30	$	376	$	2.05
Fuel gallons			204				183

Three Months Ended September 30,
2017 2016 as Reported 2016 Combined
(in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $ 368
$ 1.78
$ 218
$ 1.55
$ 298
$ 1.54
Losses on settled hedges 5
0.02
4
0.03
5
0.03
Consolidated economic fuel expense 373
1.80
222
1.58
$ 303
$ 1.57
Mark-to-market fuel hedge adjustments (5 ) (0.02 ) 3
0.02
3
0.02
GAAP fuel expense $ 368
$ 1.78
$ 225
$ 1.60
$ 306
$ 1.59
Fuel gallons 207
140
192

~~On a Combined Comparative basis, raw~~Raw fuel expense increased 95% in the third quarter of 2022 compared to the third quarter of 2021, due to significantly higher per gallon costs and increased fuel consumption. Raw fuel expense per gallon ~~for the three months ended September 30, 2017~~ increased by ~~16%~~approximately 76% due to higher West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil ~~as well as~~and refining margins associated with the conversion of crude oil to jet fuel. ~~The increase in raw fuel price per gallon during the third quarter of 2017 was primarily driven by a 76% increase in~~Crude oil prices have risen 30% while refining margins ~~and an 8% increase in crude oil prices, when~~have more than tripled compared to ~~the prior year.~~2021. Fuel gallons consumed increased ~~by 15 million gallons, or 8%~~11%, ~~in line~~consistent with ~~the increase in~~rising capacity.

We also evaluate economic fuel expense, which we define as raw fuel expense adjusted for the cash we receive from ~~or pay to,~~ hedge counterparties for hedges that settle during the period and for the premium expense that we paid for those contracts. A

key difference between aircraft fuel expense and economic fuel expense is the timing of gain or loss recognition on our hedge portfolio. ~~When we refer to~~ ~~economic~~Economic fuel expense~~, we include~~ includes gains and losses only when they are realized for those contracts that were settled during the period based on their original contract terms. We believe this is the best measure of the effect that fuel prices are currently having on our business ~~because~~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.

WeGains recognized ~~total losses of $5 million and $4 million~~ for hedges that settled during the third quarter were $29 million in 2022, compared to gains of ~~2017 and 2016 as reported.~~$21 million in the same period in 2021. These amounts represent ~~the net~~cash received from hedges at settlement, offset by cash paid ~~including the~~in prior periods for premium ~~expense recognized for those hedges.~~expense.

Non-fuel ~~Expenses and Non-special Items~~expenses

The table below provides the reconciliation of the ~~impact of Virgin America on the comparative results for each of our~~ operating expense line items, excluding fuel, the Payroll Support Program grant wage offset, and other special items. Significant operating expense variances from ~~2016~~2021 are more fully described below.


	Three Months Ended September 30,
(in millions)	2022		2021		% Change
Wages and benefits	$	686	$	578	19	%
Variable incentive pay	48		42		14	%
Aircraft maintenance	92		89		3	%
Aircraft rent	76		64		19	%
Landing fees and other rentals	161		141		14	%
Contracted services	83		62		34	%
Selling expenses	82		49		67	%
Depreciation and amortization	104		99		5	%
Food and beverage service	52		39		33	%
Third-party regional carrier expense	53		39		36	%
Other	207		126		64	%
Total non-fuel operating expenses, excluding special items	$	1,644	$	1,328	24	%

Three Months Ended September 30, Change
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Combined % Combined
Wages and benefits $ 475
$ 340
$ 72
$ 412
$ 63
15.3 %
Variable incentive pay 40
31
11
42
(2 ) (4.8 )%
Aircraft maintenance 88
64
17
81
7
8.6 %
Aircraft rent 70
25
48
73
(3 ) (4.1 )%
Landing fees and other rentals 124
89
28
117
7
6.0 %
Contracted services 76
63
16
79
(3 ) (3.8 )%
Selling expenses 91
58
34
92
(1 ) (1.1 )%
Depreciation and amortization 95
101
11
112
(17 ) (15.2 )%
Food and beverage service 50
31
13
44
6
13.6 %
Third-party regional carrier expense 30
25
—
25
5
20.0 %
Other 150
92
23
115
35
30.4 %
Total non-fuel and non-special operating expenses $ 1,289
$ 919
273
1,192
97
8.1 %

Wages and ~~Benefits~~benefits

Wages ~~and benefits~~ ~~increased~~ ~~during the~~ ~~third~~ ~~quarter of~~ ~~2017~~ by ~~$135 million, or 40%. On a Combined Comparative basis, total wages~~ and benefits increased by ~~$63~~$108 million, or ~~15%.~~19%, in the third quarter of 2022. The primary components of ~~wages~~Wages and benefits ~~including a reconciliation of 2016 on a Combined Comparative basis,~~ are shown in the following table:


	Three Months Ended September 30,
(in millions)	2022		2021		% Change
Wages	$	514	$	433	19	%
Pension - Defined benefit plans service cost	11		13		(15)	%
Defined contribution plans	39		33		18	%
Medical and other benefits	85		68		25	%
Payroll taxes	37		31		19	%
Total wages and benefits	$	686	$	578	19	%

Three Months Ended September 30, Change
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Combined % Combined
Wages $ 358
$ 250
$ 58
$ 308
$ 50
16.2 %
Pension—Defined benefit plans 8
6
—
6
2
33.3 %
Defined contribution plans 25
16
5
21
4
19.0 %
Medical and other benefits 59
50
6
56
3
5.4 %
Payroll taxes 25
18
3
21
4
19.0 %
Total wages and benefits $ 475
$ 340
$ 72
$ 412
$ 63
15.3 %

~~On a Combined Comparative basis, wages~~Wages increased ~~16% with an 18% increase in FTEs. The increase~~$81 million, or 19%, primarily driven by 13% growth in FTEs ~~is attributable~~as Alaska and Horizon hire to support the ~~growth~~ramp up in our business, as well as the growth in McGee Air Services which has brought certain airport ground service positions in-house that were previously reflected in our Contracted services expense. Additionally, irregular operations and flight cancellationsoperations. The ratification of three new collective bargaining agreements during the third quarter resulted in significant ~~overtime~~wage increases for the represented groups. As a result of the new agreements, the Company recorded $35 million in incremental wage expense during the quarter, $16 million of which relates to a one-time adjustment of accrued benefits for new wage rates.

Increased expense for defined contribution plans and payroll taxes are consistent with the change in wages.

Medical and other benefits increased $17 million, or 25%, driven by growth in FTEs and premium costs, coupled with an increase in the obligation for our ~~customer service agents and reservations agents.~~pilots long-term disability plan.

Variable incentive pay

~~Depreciation and Amortization~~

~~Depreciation and amortization~~Variable incentive pay expense ~~decreased~~increased by $6 million, or 6%14%, ~~during~~in the third quarter of ~~2017~~2022. The increase is due to the expectation that higher payouts will be achieved under the 2022 Performance Based Pay Plan.

Aircraft rent

Aircraft rent expense increased by $12 million, or 19%, in the third quarter of 2022. Increased expense is due to the delivery of eight leased Boeing 737-9 aircraft and ten leased Embraer E175 aircraft operated by SkyWest since September 30, 2021.

Landing fees and other rentals

Landing fees and other rentals increased by $20 million, or 14%, in the third quarter of 2022. The increase compared to the same period in ~~2016. On a Combined Comparative basis, depreciation~~2021 is driven primarily by increases in departures as well as rate increases for terminal rents. Rates for both fixed airport rent and ~~amortization expense decreased~~landing fees rose significantly at Seattle-Tacoma International Airport, the Company's largest hub, which accounted for 75% of the increase compared to prior year.

Contracted services

Contracted services increased by ~~$17~~$21 million, or ~~15%. This decrease was primarily driven by a change~~34%, in the ~~estimated useful lives~~third quarter of ~~certain B737 operating aircraft~~2022, driven primarily by increased departures and ~~related parts from 20 years to 25 years, which was effective October 1, 2016, partially offset~~passengers, coupled with higher rates charged by ~~aircraft additions since September 30, 2016.~~vendor partners.

~~Other Operating Expenses~~Selling expenses

~~Other operating~~Selling expenses increased by ~~$58~~$33 million, or ~~63%~~67%, ~~during~~in the third quarter of ~~2017~~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 $13 million, or 33%, in the third quarter of 2022, consistent with a 16% increase in revenue passengers. Additional on-board offerings coupled with increased charges for transportation and food service supplies 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 36%, in the third 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 ~~same period in 2016. On a Combined Comparative basis, other operating expenses~~prior-year period.

Other expense

Other expense increased ~~by $35~~$81 million, or ~~30%. The increase~~64%, in the third quarter of 2022. Increased expense as compared to the prior year period is ~~primarily~~partially due to ~~additional costs~~$28 million incurred for employee recognition related to the 90,000 mile gift granted to all employees. Other items that increased within Other expense include training events and related travel costs, crew hotel stays, and crew per diem. Increases in crew-related costs ~~passenger disruption costs, training costs for front-line employees, scrapped parts inventory,~~are consistent with the rise in departures.

Special items - fleet transition

We recorded expenses associated with fleet transition and ~~certain information technology costs. These increases were largely driven by the growth in our business and increased costs from flight cancellations and delays during the quarter. .~~

~~Nonoperating Income (Expense)~~

~~During the~~ ~~third~~ ~~quarter~~related charges of ~~2017 we recorded nonoperating expense of $12 million compared to income of $2~~$155 million in the ~~same period in 2016. On~~third quarter of 2022. Refer to Note 2 to the consolidated financial statements for additional details.

Special items - labor ratification bonus

We recorded a ~~Combined Comparative basis, nonoperating~~nonrecurring expense ~~increased by $9~~of $90 million ~~primarily due to interest expense incurred~~ in the ~~current year on~~third quarter of 2022 representing a payment to Alaska pilots following the ~~debt issued in 2016 to finance the acquisition~~ratification of ~~Virgin America.~~a new collective bargaining agreement.

~~Additional Segment Information~~ADDITIONAL SEGMENT INFORMATION

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

Mainline

Mainline ~~recorded~~operations reported an adjusted pretax profit of ~~$422~~$446 million in the third quarter of ~~2017~~2022, compared to ~~$383~~an adjusted pretax profit of $221 million in the third quarter of ~~2016. On a Combined Comparative basis, Mainline adjusted pretax profit decreased by $48 million.~~2021. The table below provides the reconciliation of the impact of Virgin America on the comparative results for our Mainline segment, excluding merger-related costs and mark-to-market fuel-hedge accounting charges:

Three Months Ended September 30,
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Change
Mainline
Operating revenues $ 1,834
$ 1,293
$ 446
$ 1,739
$ 95
Non-fuel, non-special operating expenses 1,077
727
273
1,000
77
Economic fuel 328
188
81
269
59
Operating income 429
378
92
470
(41 )
Nonoperating income (expense) (7 ) 5
(5 ) —
(7 )
Pretax profit $ 422
$ 383
$ 87
$ 470
$ (48 )

~~The $48~~$225 million ~~decrease in Combined Comparative pretax profit~~improvement was primarily driven by a ~~$77~~$792 million increase in ~~non-fuel operating expenses and~~Passenger revenue, offset by a ~~$59~~$326 million increase in economic fuel cost ~~partially offset by~~and a ~~$95~~$292 million increase in non-fuel operating ~~revenues. The~~costs.

As compared to the prior year, higher Mainline revenue is primarily attributable to a 27% increase in ~~non-fuel expense was primarily~~traffic and a 23% increase in yield, driven by a historically strong demand environment. Non-fuel operating expenses increased, driven by higher ~~wages to support our~~variable costs, largely consistent with the overall growth in capacity and ~~higher other operating expenses as described above. The~~departures. Higher fuel prices, combined with more gallons consumed, drove the increase in ~~economic~~Mainline fuel expense was driven by higher raw fuel costs and refining margins. The increase in operating revenues was primarily driven by higher capacity and an increase in frequent flyer revenue as described above.expense.

Regional

~~Our~~ Regional operations ~~contributed a~~reported an adjusted pretax ~~profit~~loss of ~~$20~~$2 million in the third quarter of ~~2017~~2022, compared to ~~$35~~an adjusted pretax loss of $1 million in the third quarter of ~~2016. The decrease in pretax profit~~2021. While operating revenue increased $47 million, the improvement was ~~attributable to higher non-fuel operating expense, due to increased capacity and the operational disruptions at Horizon during the third quarter. Increased costs were partially~~ offset by a ~~$13~~$44 million increase in fuel costs and a $4 million increase in non-fuel operating ~~revenues as described~~expenses.

Regional passenger revenue increased significantly compared to the third quarter of 2021, primarily driven by an improved load factor and a 29% improvement in ~~Passenger Revenue—Regional.~~yield. Higher fuel prices contributed to the increase in Regional fuel expense.

Horizon

Horizon ~~incurred a~~reported an adjusted pretax ~~profit~~loss of $5$6 million in the third quarter of ~~2017~~2022, compared to $9an adjusted pretax profit of $8 million in the third quarter of ~~2016.~~2021. The ~~change in~~shift to adjusted pretax ~~profit was primarily~~loss is driven by ~~a $4 million increase in operating~~lower CPA revenue partially offset by higher non-fuel operating expenses attributable to higher wage and pilot training expense as a result of the increase in FTEs, along with other increased costs associated with flight cancellations during the current quarter. on decreased departures.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2022 TO NINE MONTHS ENDED SEPTEMBER 30, ~~2016~~2021

Our consolidated net income for the nine months ended September 30, ~~2017~~2022 was ~~$661~~$36 million, or ~~$5.31~~$0.28 per ~~diluted~~ share, compared to consolidated net income of ~~$700~~$460 million, or ~~$5.63~~$3.64 per ~~diluted~~ share, for the nine months ended September 30, 2016. As the acquisition of Virgin America closed on December 14, 2016, our financial results include results of Virgin America for the nine months ended September 30, 2017, but not for the prior periods.2021.

~~Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, our~~

Our adjusted net income for the nine months ended September 30, ~~2017~~2022 was ~~$721~~$438 million, or ~~$5.79~~$3.42 per ~~diluted~~ share, compared to an adjusted net ~~income~~loss of ~~$717~~$287 million, or ~~$5.77~~$2.27 per ~~diluted~~ share, in the nine months ended September 30, ~~2016.~~2021. The following ~~tables reconcile~~table reconciles our adjusted net income and ~~diluted~~adjusted EPS to amounts as reported in accordance with GAAP:


	Nine Months Ended September 30,
	2022				2021
(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income per share	$	36	$	0.28	$	460	$	3.64
Payroll Support Program grant wage offset	—		—		(914)		(7.24)
Mark-to-market fuel hedge adjustments	64		0.50		(68)		(0.54)

Special items - fleet transition	376		2.94		5		0.04
Special items - labor ratification bonus	90		0.70		—		—
Special items - restructuring	—		—		(12)		(0.09)
Income tax effect of reconciling items above	(128)		(1.00)		242		1.92
Non-GAAP adjusted net income (loss) per share	$	438	$	3.42	$	(287)	$	(2.27)

CASM excluding fuel and special items reconciliation is summarized below:


	Nine Months Ended September 30,
(in cents)	2022		2021		% Change
Consolidated:
CASM	15.56	¢	9.50	¢	64	%
Less the following components:
Payroll Support Program grant wage offset	—		(2.39)		NM
Aircraft fuel, including hedging gains and losses	4.37		2.24		95	%
Special items - fleet transition	0.82		0.01		NM
Special items - labor ratification bonus	0.20		—		NM
Special items - restructuring	—		(0.03)		NM

CASM excluding fuel and special items	10.17	¢	9.67	¢	5	%

Mainline:
CASM	14.59	¢	8.26	¢	77	%
Less the following components:
Payroll Support Program grant wage offset	—		(2.61)		NM
Aircraft fuel, including hedging gains and losses	4.44		1.99		123	%
Special items - fleet transition	0.69		0.02		NM
Special items - labor ratification bonus	0.22		—		NM
Special items - restructuring	—		(0.04)		NM

CASM excluding fuel and special items	9.24	¢	8.90	¢	4	%

Nine Months Ended September 30,
2017 2016
(in millions, except per share amounts) Dollars Diluted EPS Dollars Diluted EPS
Reported GAAP net income and diluted EPS $ 661
$ 5.31
$ 700
$ 5.63
Mark-to-market fuel hedge adjustments 7
0.06
(9 ) (0.07 )
Special items—merger-related costs 88
0.70
36
0.29
Income tax effect on special items and fuel hedge adjustments (35 ) (0.28 ) (10 ) (0.08 )
Non-GAAP adjusted net income and diluted EPS $ 721
$ 5.79
$ 717
$ 5.77
OPERATING REVENUE

~~Our operating costs per ASM are summarized below:~~

Nine Months Ended September 30,
(in cents) 2017 2016 % Change
Consolidated:
CASM
10.55 ¢
10.08 ¢ 4.7 %
Less the following components:
Aircraft fuel, including hedging gains and losses 2.27
1.81
25.4 %
Special items—merger-related costs 0.19
0.11
72.7 %
CASM excluding fuel and special items
8.09 ¢
8.16 ¢ (0.9 )%

Mainline:
CASM
9.72 ¢
9.06 ¢ 7.3 %
Less the following components:
Aircraft fuel, including hedging gains and losses 2.19
1.72
27.3 %
Special items—merger-related costs 0.21
0.13
61.5 %
CASM excluding fuel and special items
7.32 ¢
7.21 ¢ 1.5 %

~~COMBINED COMPARATIVE OPERATING STATISTICS~~

Nine Months Ended September 30,
2017 2016 as Reported 2016 Virgin America 2016 Combined Change
Consolidated:
Revenue passengers (in 000) 33,063 25,536 6,029 31,565 4.7%
RPMs (in 000,000) 39,073 27,569 9,101 36,670 6.6%
ASMs (in 000,000) 46,170 32,728 10,821 43,549 6.0%
Load Factor 84.6% 84.2% (a) 84.2% 0.4 pts
PRASM 11.08¢ 11.36¢ (a) 11.10¢ (0.2)%
RASM 12.93¢ 13.47¢ (a) 12.95¢ (0.2)%
CASMex 8.09¢ 8.16¢ (a) 7.98¢ 1.4%
FTEs 19,723 14,500 2,771 17,271 14.2%

Mainline:
RPMs (in 000,000) 36,046 24,767 9,101 33,868 6.4%
ASMs (in 000,000) 42,398 29,216 10,821 40,037 5.9%
Load Factor 85.0% 84.8% (a) 84.6% 0.4 pts
PRASM 10.36¢ 10.39¢ (a) 10.37¢ (0.1)%


~~(a)~~	~~2016 Combined operating statistics have been recalculated using the combined results.~~

~~COMBINED COMPARATIVE OPERATING REVENUES~~

Total operating ~~revenues~~ revenue increased~~$1.6~~ $2.9 billion,, or ~~35%~~68%, during the first nine months of ~~2017~~2022 compared to the same period in ~~2016. On a Combined Comparative basis, total operating revenues increased $330 million, or 6%.~~2021. The changes ~~including the reconciliation of the impact of Virgin America on the comparative results,~~ are summarized in the following table:


	Nine Months Ended September 30,
(in millions)	2022		2021		% Change
Passenger revenue	$	6,544	$	3,785	73	%
Mileage Plan other revenue	433		332		30	%
Cargo and other	190		160		19	%
Total operating revenue	$	7,167	$	4,277	68	%

Nine Months Ended September 30, Change
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Combined % Combined
Passenger
Mainline $ 4,390
$ 3,036
$ 1,115
$ 4,151
$ 239
5.8 %
Regional 725
682
—
682
43
6.3 %
Total passenger revenue 5,115
3,718
1,115
4,833
282
5.8 %
Freight and mail 88
82
—
82
6
7.3 %
Other—net 768
607
119
726
42
5.8 %
Total operating revenues $ 5,971
$ 4,407
$ 1,234
$ 5,641
$ 330
5.9 %

Passenger ~~Revenue—Mainline~~revenue

~~Mainline passenger~~On a consolidated basis, Passenger revenue for the first nine months of ~~2017~~2022 increased~~45%~~ by $2.8 billion, or 73%, on a ~~45%~~41% increase in passenger traffic and a 23% improvement in ticket yields. Although our airlines experienced operational disruptions in the first half of 2022 that have since been resolved, demand for both leisure and business travel continued to drive revenue results to historic levels.

For the fourth quarter, we anticipate Passenger revenue will continue to show meaningful improvements over the comparable prior year period on increased capacity offered. Strong demand for passenger air travel has persisted through summer and into the fall, with yields and load factors expected to exceed prior year results.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue increased $101 million, or 30%, in the first nine months of 2022. The change is largely due to an increase in commissions from our bank card partners driven ~~primarily~~ 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 ~~acquisition~~fourth quarter of ~~Virgin America, and flat PRASM~~2022 compared to the ~~same period in~~ ~~2016~~. prior year, driven by higher commissions resulting from the improved economics of our new co-branded credit card agreement and increased card spend.

Cargo and other

On a ~~Combined Comparative~~consolidated basis, ~~mainline passenger~~Cargo and other revenue ~~for~~increased $30 million, or 19%, in the first nine months ~~ended September 30, 2017 increased 6%, primarily~~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 ~~a 6%~~greater use of belly capacity, which grew on an increase in ~~capacity on flat PRASM. The~~scheduled departures.

We expect Cargo and other revenue to increase in ~~capacity was~~the fourth quarter of 2022 compared to the prior year, driven by greater ancillary revenue and growth in our ~~network expansion since September 30, 2016.~~cargo business.

~~Passenger Revenue—Regional~~

OPERATING EXPENSES

~~Regional passenger revenue~~

Total operating expenses increased by ~~$43 million~~, $3.5 billion, or 6%96%, compared to the first nine months of ~~2016, due to a~~ 7%~~increase~~ ~~in capacity on more regional flying, partially offset by a~~ 1%~~decrease~~ ~~in PRASM.~~

~~Other—Net~~

~~Other—net revenue~~ ~~increased$161 million, or~~ ~~27%, from the first~~ ~~nine~~ ~~months of~~ ~~2016~~. On a Combined Comparative basis, other—net revenue increased $42 million, or 6%. Mileage Plan revenue contributed $40 million of the increase primarily driven by an increase in miles sold to our affinity credit card partner.

~~COMBINED COMPARATIVE OPERATING EXPENSES~~

~~Total operating expenses~~ ~~increased$1.6 billion, or~~ ~~48%, compared to the first~~ ~~nine~~ ~~months of~~ ~~2016. On a Combined Comparative basis, total operating expenses increased $533 million, or 12%.~~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:


	Nine Months Ended September 30,
(in millions)	2022		2021		% Change
Fuel expense	$	2,000	$	853	134	%
Non-fuel operating expenses, excluding special items	4,654		3,699		26	%
Payroll Support Program grant wage offset	—		(914)		NM
Special items - fleet transition	376		5		NM
Special items - labor ratification bonus	90		—		NM
Special items - restructuring	—		(12)		NM

Total operating expenses	$	7,120	$	3,631	96	%

Nine Months Ended September 30, Change
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Combined % Combined
Fuel expense $ 1,051
$ 593
$ 229
$ 822
$ 229
27.9 %
Non-fuel expenses 3,734
2,670
804
3,474
260
7.5 %
Special items—merger-related costs 88
36
8
44
44
100.0 %
Total operating expenses $ 4,873
$ 3,299
$ 1,041
$ 4,340
$ 533
12.3 %

Fuel ~~Expense~~expense

Aircraft fuel expense increased ~~$458 million,~~$1.1 billion, or ~~77%~~134%, compared to the nine months ended September 30, ~~2016. On a Combined Comparative basis, aircraft fuel expense increased $229 million, or 28%.~~2021. The elements of the change are illustrated in the ~~following~~ table:


	Nine Months Ended September 30,
	2022				2021
(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	$	2,103	$	3.67	$	949	$	1.99
(Gain)/loss on settled hedges	(167)		(0.29)		(28)		(0.06)
Consolidated economic fuel expense	$	1,936	$	3.38	$	921	$	1.93
Mark-to-market fuel hedge adjustments	64		0.11		(68)		(0.14)
GAAP fuel expense	$	2,000	$	3.49	$	853	$	1.79
Fuel gallons			573				477

Nine Months Ended September 30,
2017 2016 as Reported 2016 Combined
(in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $ 1,030
$ 1.74
$ 590
$ 1.44
$ 801
$ 1.44
Losses on settled hedges 14
0.02
12
0.03
32
0.06
Consolidated economic fuel expense 1,044
1.76
602
1.47
$ 833
$ 1.50
Mark-to-market fuel hedge adjustments 7
0.01
(9 ) (0.02 ) (11 ) (0.02 )
GAAP fuel expense $ 1,051
$ 1.77
$ 593
$ 1.45
$ 822
$ 1.48
Fuel gallons 592
410
554

~~On a Combined Comparative basis,~~Raw fuel expense increased 122% in the ~~raw~~first nine months of 2022 compared to the first nine months of 2021, due to significantly higher per gallon costs and increased fuel ~~price~~consumption. Raw fuel expense per gallon increased ~~21%~~by approximately 84% due to higher West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil ~~as well as~~and refining margins associated with the conversion of crude oil to jet fuel. ~~The increase in~~ Crude oil prices have risen 49% while refining margins have more than tripled compared to 2021. Fuel gallons consumed increased 20%, consistent with rising capacity.

We also evaluate economic fuel expense, which we define as raw fuel ~~price per gallon~~expense adjusted for the cash we receive from hedge counterparties for hedges that settle during the ~~first nine months~~period and for the premium expense that we paid for those contracts. A key difference between aircraft fuel expense and economic fuel expense is the timing of ~~2017 was driven by a 19% increase in crude oil~~gain or loss recognition on our hedge portfolio. Economic fuel expense includes gains and losses only when they are realized for those contracts that were settled during the period based on their original contract terms. We believe this is the best measure of the effect that fuel prices 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 ~~a 38% increase in refining margins.~~it is the basis for most internal management reporting and incentive pay plans.

WeGains recognized ~~losses of $14 million and $12 million~~ for hedges that settled in the first nine months of ~~2017 and 2016 as reported.~~2022 were $167 million, compared to gains of $28 million in the same period in 2021. These amounts represent ~~the~~ cash ~~paid for premium expense,~~received from settled hedges, offset by cash ~~received from those hedges.~~paid in prior periods for premium expense.

We ~~currently~~ expect ~~our economic~~continued pressure in aircraft fuel ~~price per gallon to be higher~~expense in the fourth quarter of ~~2017~~2022, driven by both increased raw fuel and refining margins on increased capacity. We expect our economic fuel cost per gallon in the fourth quarter to range between $3.50 to $3.70 per gallon. Based on expected raw fuel prices, we will continue to recognize benefits from our fuel hedge portfolio in the fourth quarter. We expect the magnitude of the hedge benefit to be smaller compared to prior quarters in 2022 as the strike price of the portfolio approaches projected market cost per barrel.

Non-fuel expenses


	Nine Months Ended September 30,
(in millions)	2022		2021		% Change
Wages and benefits	$	1,931	$	1,581	22	%
Variable incentive pay	140		109		27	%
Aircraft maintenance	331		272		22	%
Aircraft rent	222		188		18	%
Landing fees and other rentals	435		414		5	%
Contracted services	243		167		45	%
Selling expenses	218		123		76	%
Depreciation and amortization	310		294		5	%
Food and beverage service	143		97		46	%
Third-party regional carrier expense	145		106		37	%
Other	536		348		54	%
Total non-fuel operating expenses, excluding special items	$	4,654	$	3,699	26	%

For the fourth quarter of ~~2016 due~~2022, we generally anticipate recognizing higher non-fuel operating costs compared to the prior year as we continue to increase our ~~current estimate~~capacity and scheduled departures, and pay a larger employee base higher wage rates following the ratification of ~~higher crude prices and higher refining margins.~~new labor agreements.

~~Non-fuel Expense and Non- special items~~

The table below provides the reconciliation of the impact of Virgin America on the comparative results for each of our operating expense line items, excluding fuel and special items. Significant operating expense variances from 2016 are more fully described below.

Nine Months Ended September 30, Change
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Combined % Combined
Wages and benefits $ 1,392
$ 1,008
$ 219
$ 1,227
$ 165
13.4 %
Variable incentive pay 98
95
25
120
(22 ) (18.3 )%
Aircraft maintenance 271
197
51
248
23
9.3 %
Aircraft rent 204
80
143
223
(19 ) (8.5 )%
Landing fees and other rentals 338
232
83
315
23
7.3 %
Contracted services 234
183
47
230
4
1.7 %
Selling expenses 269
162
96
258
11
4.3 %
Depreciation and amortization 275
281
29
310
(35 ) (11.3 )%
Food and beverage service 145
93
39
132
13
9.8 %
Third-party regional carrier expense 84
72
—
72
12
16.7 %
Other 424
267
72
339
85
25.1 %
Total non-fuel and non-special operating expenses $ 3,734
$ 2,670
804
3,474
260
7.5 %

Wages and ~~Benefits~~benefits

Wages ~~and benefits~~ ~~increased~~ ~~during the first~~ ~~nine~~ ~~months of~~ ~~2017~~ by ~~$384 million, or~~ ~~38%, compared to~~ ~~2016. On a Combined Comparative basis, total wages~~ and benefits increased by ~~$165~~$350 million, or ~~13%~~22%, ~~compared to 2016.~~in the first nine months of 2022. The primary components of wages and benefits are shown in the following table:


	Nine Months Ended September 30,
(in millions)	2022		2021		% Change
Wages	$	1,467	$	1,176	25	%
Pension - Defined benefit plans service cost	34		39		(13)	%
Defined contribution plans	116		91		27	%
Medical and other benefits	207		192		8	%
Payroll taxes	107		83		29	%
Total wages and benefits	$	1,931	$	1,581	22	%

Nine Months Ended September 30, Change
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Combined % Combined
Wages $ 1,055
$ 749
$ 171
$ 920
$ 135
14.7 %
Pension—Defined benefit plans 24
19
—
19
5
26.3 %
Defined contribution plans 73
49
18
67
6
9.0 %
Medical and other benefits 163
135
18
153
10
6.5 %
Payroll taxes 77
56
12
68
9
13.2 %
Total wages and benefits $ 1,392
$ 1,008
$ 219
$ 1,227
$ 165
13.4 %

~~On a Combined Comparative basis, wages~~Wages increased ~~$135~~$291 million, or ~~15%~~25%, ~~on a 14% increase~~ in ~~FTEs. The increase in FTEs is attributable to~~ the growth of our business and increased staffing during irregular operations, as well as the growth in McGee Air Services which has brought certain airport ground service positions in-house that were previously reflected in our Contracted services expense. The remainder of the increase is driven by higher wage rates for certain labor groups. The first nine months of ~~2017 also include $9~~2022, primarily driven by 19% growth in FTEs as Alaska and Horizon hire to support the ramp up in operations. The ratification of three new collective bargaining agreements during the third quarter resulted in significant wage increases for the represented groups. As a result of the new agreements, the Company recorded $35 million in incremental wage expense during the quarter, $16 million of ~~ratification bonus~~which relates to a one-time adjustment of accrued benefits for new wage rates.

Increased expense ~~in connection~~for defined contribution plans and payroll taxes are consistent with the ~~agreement reached with Horizon's pilots during the second quarter.~~change in wages.

For the full year, we expect wages and benefits to increase at a rate greater than capacity growth on a combined comparative basis, due to higher wage rates for certain labor groups and the continued growth of McGee Air Services. Our forecast includes the impact of the pilot arbitration decision which was received subsequent to quarter end, and results in an estimated $24 million of incremental costs in the fourth quarter of 2017.

Variable ~~Incentive Pay~~incentive pay

Variable incentive pay expense increased ~~during~~$31 million, or 27%, in the first nine months of ~~2017 by $3 million, or 3% compared~~2022. The increase is due to ~~2016. On a Combined Comparative basis,~~the expectation that higher payouts will be achieved under the 2022 Performance Based Pay Plan.

In the fourth quarter we anticipate variable incentive pay ~~decreased $22 million, or 18% due to expectations of lower performance-based pay~~will increase as compared to the ~~prior year based~~prior-year period on ~~how we are tracking~~an expectation of improved payout under the plan.

Aircraft maintenance

Aircraft maintenance expense increased by $59 million, or 22%, in ~~relation~~the first nine months of 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

Aircraft rent expense increased by $34 million, or 18%, in the first nine months of 2022. Increased expense is due to the ~~current year's goals.~~delivery of eight leased Boeing 737-9 aircraft and ten leased Embraer E175 aircraft operated by SkyWest since September 30, 2021.

~~For~~Landing fees and other rentals

Landing fees and other rentals in the ~~full year, we expect variable incentive pay expense~~first nine months of 2022 were generally flat as compared to ~~be lower than~~the same period in ~~2016 on a combined comparative basis, due to lower achievement against performance-based pay metrics than prior year.~~2021. Increases in departures across the system were offset by favorable resolution for certain pandemic period airport accruals.

~~Depreciation and Amortization~~Contracted services

~~Depreciation and amortization expense decreased $6~~Contracted services increased by $76 million, or ~~2% compared to 2016. On a Combined Comparative basis, depreciation~~46%, in the first nine months of 2022, driven primarily by increased departures and ~~amortization decreased $35~~passengers in line with increased demand, coupled with increased rates charged by vendor partners.

Selling expenses

Selling expenses increased by $95 million, or ~~11%. This decrease was~~77%, in the first nine months of 2022, primarily driven by ~~a change~~an increase in distribution costs and credit card commissions incurred with the estimated useful lives of certain B737 operating aircraft and related parts from 20 years to 25 years, which was effective October 1, 2016, partially offset by aircraft additions since September 30, 2016.overall revenue recovery.

~~For the full year, we expect depreciation and amortization to be 5-6% lower than in 2016 on a combined comparative basis for the same reasons mentioned above.~~

Food and ~~Beverage Service~~beverage service

Food and beverage service ~~expense~~ increased ~~$52~~by $46 million, or ~~56%. On a Combined Comparative basis,~~46%, in the first nine months of 2022. Incremental food and beverage service expense increased $13 million, or 10% due to increased number of passengers, premium class offerings and enhancements to our onboard menu offerings to provide higher quality food and beverage products.

~~For the full year, we expect food and beverage expense to be approximately 11-12% higher than in 2016 on a combined comparative basis,~~charges are in line with the 34% increase in revenue passengers inas well as additional offerings of on-board products as compared to the ~~current year, and enhancements to our onboard menu offerings.~~prior-year period.

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

Third-party regional carrier expense, which represents payments made to SkyWest ~~and Pen Air~~ under our ~~CPAs,~~CPA, increased ~~$12~~$39 million, or ~~17% compared to 2016. The increase is primarily due to the additional six E175 aircraft operated by SkyWest in the current year.~~

~~For the full year, we expect Third-party regional carrier expense to increase due to increased flying by our regional partners.~~

~~Other Operating Expenses~~

~~Other operating expenses increased by $157 million, or 59%~~37%, compared to the first nine months of 2016. On a Combined Comparative basis, other operating expenses increased by $85 million, or 25%. The increase was due to higher costs associated with irregular operations, crew and training costs, higher IT costs, an increase in scrapped parts inventory, and higher property taxes. The first nine months of 2016 also included a benefit of an insurance claim reimbursement we received in the prior year.

~~For the full year, we expect other expenses to be higher than in 2016 in line with the trends described above.~~

~~Special Items—Merger-Related Costs~~

~~We recorded special items of $88 million for merger-related costs associated with our acquisition of Virgin America~~ in the first nine months of ~~2017,~~2022. The increase in expense is due to incremental departures flown by SkyWest with ten additional aircraft in operating service as compared to ~~$36~~the prior-year period.

We expect third-party regional carrier expense to grow in the fourth quarter of 2022 compared to the prior year as we continue operating the ten additional Embraer E175 aircraft under the CPA with SkyWest.

Other expense

Other expense increased $188 million, ~~as reported and $44 million on a Combined Comparative basis~~or 54%, in the first nine months of ~~2016. Costs~~2022. The most significant drivers of the increased cost were training events and related travel costs, crew hotel stays, and crew per diem. Increases in crew-related costs are consistent with the rise in departures. The increase within Other expense also includes $28 million incurred for employee recognition related to the 90,000 mile gift granted to all employees.

Special items - fleet transition

We recorded expenses associated with fleet transition and related charges of $376 million in the first nine months of ~~2017 consisted primarily of severance and retention and IT integration costs.~~

2022. We expect to ~~incur merger-related~~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 $100 million and $125 million for the ~~remainder~~fourth quarter of ~~2017,~~2022, and ~~continuing through 2019.~~are subject to change as management continues to negotiate leased aircraft returns. Refer to Note 2 to the consolidated financial statements for additional details.

~~Nonoperating Income (Expense)~~

Special items - labor ratification bonus

~~During the first nine months of 2017, we had nonoperating~~We recorded a nonrecurring expense of ~~$40 million, compared to income of $6~~$90 million in the ~~same period in 2016. On~~third quarter of 2022 representing a ~~Combined Comparative basis, nonoperating expense increased by $32 million, primarily due~~payment to ~~interest expense incurred in~~Alaska pilots following the ~~current year on the debt issued in 2016 to finance the acquisition~~ratification of ~~Virgin America.~~a new collective bargaining agreement.

~~Additional Segment Information~~ADDITIONAL SEGMENT INFORMATION

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

Mainline

Mainline operations reported an adjusted pretax profit ~~was $1.13 billion~~of $647 million in the first nine months of ~~2017~~,2022, compared to ~~$1.05 billion~~an adjusted pretax loss of $247 million in the same period in ~~2016. On a Combined Comparative basis, Mainline adjusted pretax profit decreased by $111 million.~~2021. The table below provides the reconciliation of the impact of Virgin America on the comparative results for our Mainline segment, excluding merger-related costs and mark-to-market fuel-hedge accounting charges:

Nine Months Ended September 30,
(in millions) 2017 2016 as Reported 2016 Virgin America 2016 Combined $ Change
Mainline
Operating revenues $ 5,182
$ 3,661
$ 1,234
$ 4,895
$ 287
Non-fuel, non-special operating expenses 3,101
2,107
804
2,911
190
Economic fuel 924
512
231
743
181
Operating income 1,157
1,042
199
1,241
(84 )
Nonoperating income (expense) (30 ) 11
(14 ) (3 ) (27 )
Pretax profit $ 1,127
$ 1,053
$ 185
$ 1,238
$ (111 )

~~The $111~~$894 million ~~decrease in Combined Comparative pretax profit~~improvement was driven by a ~~$181~~$2.6 billion increase in Mainline operating revenue partially offset by a $897 million increase in Mainline fuel expense and a ~~$190~~$871 million increase in Mainline non-fuel operating ~~expenses,~~expense.

As compared to the prior year, higher Mainline revenue are primarily attributable to a 47% increase in traffic and a ~~$27 million~~24% increase in ~~nonoperating expense. These increases were offset~~yield, driven by ~~a $287 million~~the significant increase in ~~Mainline passenger revenue.~~demand. Non-fuel operating expenses increased, driven by higher variable costs, largely consistent with the overall growth in capacity and departures. Higher ~~raw~~ fuel prices, ~~and an increase in~~combined with additional gallons consumed, drove the increase in Mainline fuel expense. Non-fuel operating expenses increased due to higher wages to support our growth and higher other operating expenses as described above. Nonoperating expense increased primarily due to increased interest expense. Mainline revenue increased due to higher capacity from the new routes we have added over the past twelve months.

Regional

~~Our~~ Regional operations ~~contributed a~~reported an adjusted pretax ~~profit~~loss of ~~$40~~$59 million in the first nine months of ~~2017,~~2022, compared to ~~$72~~an adjusted pretax loss of $207 million in the first nine months of ~~2016. The decrease in pretax profit was~~2021. Improved results were attributable to a $270 million increase in operating revenue which was the result of higher ~~non-fuel operating expense, due in large part to increased capacity~~demand and ~~higher raw fuel costs,~~yields, partially offset by a ~~$43~~$118 million increase in ~~operating revenues as described in Passenger Revenue—Regional.~~fuel costs on higher fuel prices.

Horizon

Horizon ~~incurred a~~reported an adjusted pretax loss of ~~$11~~$18 million in the first nine months of ~~2017,~~2022, compared to an adjusted pretax profit of ~~$14~~$34 million in the same period in ~~2016.~~2021. The ~~change was~~shift to adjusted pretax loss is driven by ~~higher non-fuel expenses and~~ lower CPA ~~Revenues (100% of which are from Alaska and eliminated in consolidation). Non-fuel expenses increased primarily due to~~revenue on decreased departures, combined with higher wage and ~~training expense as a result of~~benefit costs on incremental FTEs and increased wage rates resulting from the increase in FTE’s, increased costs associated with flight cancellations primarily due to a shortage of pilots necessary to fly the schedule, and a $9 million ratification bonus expense in connection with thenew collective bargaining agreement with ~~Horizon's~~Horizon pilots.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are:

~~Our existing~~•Existing cash and marketable securities balance of ~~$1.7~~$3.2 billion,, and ~~our expected~~ cash flows from operations;

~~Our 64~~•67 unencumbered aircraft ~~in our operating fleet~~ that could be financed, if necessary;

~~Our combined~~•Combined bank line-of-credit facilities, with no outstanding borrowings, of $400 million. ~~Information about these facilities can be found in Note 5 to the condensed consolidated financial statements.~~

During the nine months ended September 30, ~~2017,~~2022, we took free and clear delivery of ~~ten B737-900ER aircraft and ten E175~~18 owned Boeing 737-9 aircraft. We also made debt payments totaling ~~$265~~$333 million, ending the quarter with a debt-to-capitalization ratio of 49%, within our target range of 40% to 50%.

As our business returns to sustained profitability, reducing outstanding debt, normalizing our on-hand liquidity, and ~~paid dividends totaling $111 million.~~maintaining a strong balance sheet remain high priorities.

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.

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


(in millions)	September 30, 2022			December 31, 2021			Change
Cash and marketable securities	$	3,150		$	3,116		1 %
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	39		%	57		%	(18) pts
Long-term debt, net of current portion	1,889			2,173			(13)%
Shareholders’ equity	$	3,826		$	3,801		1%


Debt-to-capitalization, adjusted for operating leases
(in millions)	September 30, 2022			December 31, 2021			Change
Long-term debt, net of current portion	$	1,889		$	2,173		(13)%
Capitalized operating leases	1,745			1,547			13%

Adjusted debt, net of current portion of long-term debt	$	3,634		$	3,720		(2)%
Shareholders' equity	3,826			3,801			1%
Total invested capital	$	7,460		$	7,521		(1)%

Debt-to-capitalization, including operating leases	49		%	49		%	— pt

(in millions) September 30, 2017 December 31, 2016 Change
Cash and marketable securities $ 1,740
$ 1,580
10.1 %
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue 29 % 31 % (2) pts
Long-term debt, net of current portion $ 2,367
$ 2,645
(10.5)%
Shareholders’ equity $ 3,491
$ 2,931
19.1%
Long-term debt-to-capital including net present value of aircraft operating lease payments^(a)
53 % 59 % (6) pts


Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent
(in millions)	September 30, 2022		December 31, 2021
Current portion of long-term debt	$	321	$	366
Current portion of operating lease liabilities	263		268
Long-term debt	1,889		2,173
Long-term operating lease liabilities, net of current portion	1,482		1,279
Total adjusted debt	3,955		4,086
Less: Cash and marketable securities	(3,150)		(3,116)
Adjusted net debt	$	805	$	970

(in millions)	Twelve Months Ended September 30, 2022		Twelve Months Ended December 31, 2021
GAAP Operating Income(a)	$	86	$	685
Adjusted for:
Payroll Support Program grant wage offset and special items	462		(925)
Mark-to-market fuel hedge adjustments	85		(47)
Depreciation and amortization	410		394
Aircraft rent	288		254
EBITDAR	$	1,331	$	361
Adjusted net debt to EBITDAR	0.6x		2.7x


~~(a)~~	~~Calculated using the present value of remaining aircraft lease payments for aircraft in our operating fleet as of the balance sheet date.~~

(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.

ANALYSIS OF OUR CASH FLOWS

Cash Provided by Operating Activities

For the first nine months of ~~2017,~~2022, net cash provided by operating activities was $1.4 billion, compared to ~~$1.2 billion~~$901 million during the same period in ~~2016.~~2021. The ~~$151~~$508 million net increase in our operating cash flows is ~~primarily attributable~~due to ~~increased ticket sales for future travel~~a combination of factors. Increased remuneration from our co-brand credit card provided nearly $300 million in incremental cash as compared to 2021 on improved economics and increased volumes. Additionally, in 2022 we received $260 million in federal income tax refunds and the change in air traffic liability increased by $152 million due to strong passenger demand. The prior year ~~resulting from the overall growth in our business and the addition~~also included a nonrecurring voluntary contribution of ~~Virgin America. This was~~$100 million to Alaska pilots' defined benefit plan. These amounts were partially offset by ~~a decrease in our net income, which was impacted by higher fuel costs and $88 million~~uses of ~~merger-related costs.~~cash on increasing operating expenses as the business returned flying capacity.

~~We typically generate positive cash flows from operations and expect to use that cash flow to purchase aircraft and capital equipment, make scheduled debt payments, and return capital to shareholders.~~

Cash Used in Investing Activities

Cash used in investing activities was ~~$1.1 billion~~$888 million during the first nine months of ~~2017~~,2022, compared to ~~$641~~$943 million during the same period of ~~2016. Our~~2021. Cash used in capital expenditures ~~were~~ ~~$841~~for aircraft purchase deposits and other property and equipment was $947 million ~~in the first~~ ~~nine~~ ~~months of~~ ~~2017~~, an increase of $332 million compared to the nine months ended September 30, 2016. This is primarily driven by more aircraft purchases and higher spend on other equipment compared to the same period of 2016. Our net purchases of marketable securities increased by $202 million from the prior year, primarily driven by stronger operating cash flows in the first nine months of ~~2017.~~

~~The table below reflects our full-year expectation for~~2022, compared to $190 million in the first nine months of 2021. This increase in cash used in capital expenditures was offset by purchases and sales of marketable securities, which were $61 million of net sales during the first nine months of 2022, compared to $744 million of net purchases during the first nine months of 2021.

Cash Used in Financing Activities

Cash used in financing activities was $296 million during the first nine months of 2022, compared to $825 million during the same period in 2021. During the first nine months of 2022, we had no new proceeds from issuance of debt and utilized cash on hand to repay $333 million of outstanding long-term debt, compared to debt proceeds of $363 million and payments of $1.2 billion during the same period in 2021.

MATERIAL CASH COMMITMENTS

Aircraft Commitments

As of September 30, 2022, Alaska has firm orders to purchase 56 Boeing 737 aircraft with deliveries in 2022 through 2024 and firm commitments to lease five Boeing 737-9 aircraft with deliveries in 2022 and 2023. Alaska has options to acquire up to 11 additional ~~expenditures if~~Boeing 737-9 aircraft and 41 additional Boeing 737-10 aircraft with deliveries between 2024 and 2026. Subsequent to quarter end, Alaska executed an agreement with Boeing to exercise options to purchase 52 737 aircraft for delivery between 2024 and 2027. The agreement also secures rights for 105 additional 737 aircraft through 2030.

Alaska has received information from Boeing indicating that certain 737 deliveries in 2022 and 2023 are ~~exercised.~~expected to be delayed to 2023 and 2024. Alaska will continue to work with Boeing on delivery timelines that reflect Alaska's plans for growth.

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. The table below excludes any associated capitalized interest.~~

met over the long term.

(in millions) 2017 2018 2019
Aircraft and aircraft purchase deposits—firm $ 780
$ 820
$ 635
Other flight equipment 100
135
170
Other property and equipment 170
240
205
Total property and equipment additions $ 1,050
$ 1,195
$ 1,010
Option aircraft and aircraft deposits, if exercised^(a)
$ —
$ 170
$ 665


~~(a)~~	We have options to acquire 37 B737 aircraft with deliveries from 2020 through 2024, and options to acquire 30 E175 aircraft with deliveries in 2019 to 2021. Amounts above also include payments toward cancelable purchase commitments for 30 A320neo aircraft with deliveries from 2020 through 2022.

~~Cash Used by Financing Activities~~

~~Net cash used by financing activities was~~ ~~$399 million~~ ~~during the first~~ ~~nine~~ ~~months~~To best reflect our expectations of ~~2017~~ ~~compared to net cash provided by financing activities of~~ ~~$1.2 billion~~ ~~during the same period in~~ ~~2016. The change is due to $1.5 billion of debt financing cash inflow in the prior period for the Virgin America acquisition. During the first~~ ~~nine~~ ~~months of~~ ~~2017~~ ~~we made debt payments of~~ ~~$265 million, dividend payments totaling~~ ~~$111 million, and had $50 million in common stock repurchases.~~

~~CONTRACTUAL OBLIGATIONS AND COMMITMENTS~~

~~Aircraft Commitments~~

~~As of September 30, 2017,~~future fleet activity, we have ~~firm orders~~incorporated anticipated delivery delays related to ~~purchase or lease 93 aircraft. We also have cancelable purchase commitments for 30 Airbus A320neo with deliveries from 2020 through 2022. We could incur a loss of pre-delivery payments~~2022 and ~~credits as a cancellation fee. We also have options to acquire 37 B737 aircraft with deliveries from 2020 through 2024 and 30 E175 aircraft with deliveries from 2019 through 2021. In addition to~~ the ~~21 E175 aircraft currently operated by SkyWest in our regional fleet, we have options in future periods to add regional capacity by having SkyWest operate up to eight more E175 aircraft.~~

~~The~~October 2022 Boeing agreement described above into the following table, which summarizes our expected fleet ~~activity~~count by year, as of ~~September 30, 2017:~~November 3, 2022:


	Actual Fleet	Anticipated Fleet Activity(a)
Aircraft	September 30, 2022	2022 Additions	2022 Removals	Dec 31, 2022	2023 Changes	Dec 31, 2023	2024 Changes	Dec 31, 2024
B737-700 Freighters	3	—	—	3	—	3	—	3
B737-800 Freighters	—	—	—	—	2	2	—	2
B737-700	11	—	—	11	—	11	—	11
B737-800	61	—	—	61	(2)	59	—	59
B737-900	12	—	—	12	—	12	—	12
B737-900ER	79	—	—	79	—	79	—	79
B737-8	—	—	—	—	5	5	5	10
B737-9	33	5	—	38	35	73	10	83
B737-10	—	—	—	—	—	—	6	6
A320	23	—	(10)	13	(13)	—	—	—
A321neo	10	—	—	10	(10)	—	—	—
Total Mainline Fleet	232	5	(10)	227	17	244	21	265
Q400 operated by Horizon	22	—	(11)	11	(11)	—	—	—
E175 operated by Horizon	30	3	—	33	8	41	3	44
E175 operated by third party	42	—	—	42	—	42	—	42
Total Regional Fleet(b)	94	3	(11)	86	(3)	83	3	86
Total	326	8	(21)	313	14	327	24	351

(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.

Actual Fleet Expected Fleet Activity
Aircraft September 30, 2017 Q4 2017 Additions Q4 2017 Removals December 31, 2017 2018-2019 Changes December 31, 2019
B737 Freighters & Combis^(a)
5
2
(3 ) 4
(1 ) 3
B737 Passenger Aircraft 148
4
(1 ) 151
19
170
Airbus Passenger Aircraft 65
3
—
68
4
72
Total Mainline Fleet 218
9
(4 ) 223
22
245
Q400 operated by Horizon 52
—
—
52
(15 ) 37
E175 operated by Horizon^(b)
10
—
—
10
23
33
E175 operated by third party^(c)
21
2
—
23
12
35
Total Regional Fleet 83
2
—
85
20
105
Total 301
11
(4 ) 308
42
350


^(a)	~~Remaining 2017 changes reflect retirement of three combis and the reintroduction of two B737-700 aircraft as freighters.~~


^(b)	~~Reflects recent deferral of three aircraft from 2017 to 2018.~~


^(c)	~~Reflects third-quarter addition of ten aircraft flown by SkyWest under our CPA to be delivered in 2017 and 2018.~~

(b)Aircraft are either owned or leased by Horizon or operated under capacity purchase agreement with a third party.

~~For~~

We intend to finance future ~~firm orders,~~aircraft deliveries and ~~if we exercise our options for additional deliveries, we may finance the aircraft through internally generated~~option exercises using cash flow from operations or long-term ~~debt or lease arrangements.~~debt.

Fuel Hedge Positions

All of our ~~current~~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 ~~benefit from~~are hedged against volatile crude oil price increases. During a period of decline in crude oil prices, ~~as there is no~~we only forfeit cash ~~outlay other than the premiums we pay~~previously paid for hedge premiums. We typically hedge up to ~~enter into the contracts.~~50% of our expected consumption. Our crude oil positions are as follows:


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













Fourth Quarter 2022	60	%	$88	$5
Remainder of 2022	60	%	$88	$5
First Quarter of 2023	50	%	$93	$6
Second Quarter of 2023	40	%	$98	$7
Third Quarter of 2023	30	%	$103	$8
Fourth Quarter of 2023	20	%	$102	$8
Full Year 2023	35	%	$98	$7
First Quarter of 2024	10	%	$88	$8



Full Year 2024	2	%	$88	$8

(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.

Approximate % of Expected Fuel Requirements Weighted-Average Crude Oil Price per Barrel Average Premium Cost per Barrel
Fourth Quarter 2017 50 % $ 61
$ 2
First Quarter 2018 50 % 62
2
Second Quarter 2018 40 % $ 61
$ 2
Third Quarter 2018 30 % 60
2
Fourth Quarter 2018 20 % 60
2
Full Year 2018 35 % 61
2
First Quarter 2019 10 % 62
2
Total 2019 2 % $ 62
$ 2

Contractual Obligations

The following table ~~provides a summary of~~reflects our ~~principal payments under current and long-term debt obligations, operating lease commitments, aircraft purchase commitments and other~~contractual obligations as of September 30, ~~2017~~.2022, and the agreement executed with Boeing in October 2022. For agreements with variable terms, amounts included reflect our minimum obligations.


(in millions)	Remainder of 2022		2023		2024		2025		2026		Beyond 2026		Total
Debt obligations	$	52	$	309	$	238	$	273	$	176	$	1,178	$	2,226
Aircraft lease commitments(a)	84		282		227		221		219		929		1,962
Facility lease commitments	5		17		9		8		8		86		133
Aircraft-related commitments(b)	629		2,024		1,394		1,262		689		941		6,939


Interest obligations(c)	9		102		70		55		60		164		460
Other obligations(d)	43		183		190		195		190		780		1,581
Total	$	822	$	2,917	$	2,128	$	2,014	$	1,342	$	4,078	$	13,301

(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.

(in millions) Remainder of 2017 2018 2019 2020 2021 Beyond 2021 Total
Current and long-term debt obligations $ 55
$ 350
$ 422
$ 449
$ 422
$ 1,016
$ 2,714
Operating lease commitments ^(a)
111
415
409
380
335
1,467
3,117
Aircraft maintenance deposits ^(b)
15
61
65
68
63
90
362
Aircraft purchase commitments ^(c)
168
956
806
352
273
355
2,910
Interest obligations ^(d)
18
89
77
63
48
108
403
Aircraft maintenance and parts management ^(e)
8
32
35
37
40
—
152
Other obligations ^(f)
22
125
158
165
172
1,277
1,919
Total $ 397
$ 2,028
$ 1,972
$ 1,514
$ 1,353
$ 4,313
$ 11,577
(b)Includes contractual commitments for aircraft, engines, and aircraft maintenance. Option deliveries are excluded from minimum commitments until exercise.


~~(a)~~	Operating lease commitments generally include aircraft operating leases, airport property and hangar leases, office space, and other equipment leases. Included here are E175 aircraft that are operated by SkyWest under capacity purchase agreements.


~~(b)~~	~~Aircraft maintenance deposits relate to leased Airbus aircraft.~~


~~(c)~~	~~Represents non-cancelable contractual commitments for aircraft and engines.~~


~~(d)~~	~~For variable-rate debt, future obligations are shown above using interest rates in effect as of September 30, 2017.~~


~~(e)~~	Includes minimum obligations under engine and parts management and maintenance agreements with third-party vendors. Subsequent to September 30, 2017, the Company signed a parts management and maintenance agreement which includes minimum obligations of approximately $459 million over a nine-year period, not included in the table above.


~~(f)~~	~~Includes minimum obligations associated with the SkyWest third-party CPA.~~

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

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

Following the October 2022 agreement with Boeing, we now anticipate capital expenditures for 2022 to range between $1.5 billion and $1.6 billion, which we plan to fund with cash generated by operating activities and cash on hand.

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 ~~contractually-specified level,~~agreement or if our cash and marketable securities balance ~~falls~~fell below ~~$500 million~~.$500 million. Under another such agreement, we could be required to maintain a reserve if our cash and marketable securities balance ~~falls~~fell below ~~$500 million~~.$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

~~Deferred~~ 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.

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~~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, ~~pending~~any future tax reform efforts at the federal level, as well as other legislative changes that are beyond our control.

In August 2022, the Inflation Reduction Act ("IRA") bill was signed into law, effective for tax years beginning after December 31, 2022. The IRA includes a provision to implement a 15% corporate alternative minimum tax on corporations whose average annual adjusted income during the most recently-completed three-year period exceeds $1 billion. We will continue to evaluate the provisions within the IRA, but at this time we do not believe ~~that we~~it will have ~~the liquidity to make~~a material impact on our ~~future tax payments.~~financial statements.

CRITICAL ACCOUNTING ESTIMATES

~~There have been no material changes to our critical accounting estimates~~Except as described below, for ~~the three months ended September 30, 2017. For~~ information onregarding our critical accounting estimates, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~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 September 30, 2022, the deferred revenue balance associated with the Mileage Plan program was $2.5 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 ~~the present value of future~~capitalized operating ~~lease payments)~~leases) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share ~~("EPS")~~(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

~~Free Cash Flow -~~ ~~total operating cash flow generated less cash paid for capital expenditures~~

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, ~~and~~ Airbus 320 family and Airbus 321neo jets and all associated ~~revenues~~revenue and costs

~~PRASM~~ ~~- passenger revenue per ASM; commonly called “passenger unit revenue”~~

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 ~~SkyWest~~ and ~~PenAir.~~SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon ~~SkyWest~~ and ~~PenAir~~SkyWest under the respective capacity purchased arrangement ~~(CPAs)~~(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



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, ~~2016~~.2021.



ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, ~~2017~~,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 September 30, ~~2017~~.2022.

Changes in Internal Control over Financial Reporting

~~Except as noted below, there~~There have been no changes in ~~our~~the Company’s internal ~~control~~controls over financial reporting during the quarter ended September 30, ~~2017~~,2022, that have materially affected, or are reasonably likely to materially affect, our internal ~~control~~controls over financial reporting.

In the fourth quarter of 2016, we acquired Virgin America (see Note 2). As permitted by Securities and Exchange Commission Staff interpretive guidance for newly acquired businesses, management excluded Virgin America from its annual evaluation ofOur internal control over financial reporting asis based on the 2013 framework in Internal Control - Integrated Framework issued by the Committee of December 31, 2016. We are implementing internal controls over significant processes specific to the acquisition that we believe are appropriate in consideration of related integration of operations, systems, control activities, and accounting for the merger and merger-related transactions. AsSponsoring Organizations of the ~~date of this Quarterly Report on Form 10-Q, we are in the process of further integrating the acquired Virgin America operations into our overall internal controls over financial reporting.~~Treadway Commission (the COSO Framework).

PART II



ITEM 1. LEGAL PROCEEDINGS

~~We are~~The Company is a party to routine litigation matters incidental to ~~our business. Management believes the ultimate disposition of these matters~~its business and with respect to which no material liability is ~~not likely~~expected. Liabilities for litigation related contingencies are recorded when a loss is determined to ~~materially affect our financial position or results of operations. This forward-looking statement is based on management’s current understanding of the relevant law~~be probable and ~~facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries.~~estimable.

As part ~~Virgin America’s motion.~~of the 2016 acquisition of Virgin America, Alaska assumed responsibility for the Virgin trademark license agreement with the Virgin Group. In 2019, the Virgin Group sued Alaska in England, alleging that the agreement requires Alaska to pay $8 million per year as a minimum annual royalty through 2039, adjusted annually for inflation. Alaska stopped making royalty payments in 2019 after ending all use of the Virgin brand. The Virgin Group asserts that payments are required without regard to actual use of the mark. A trial was held in October 2022, and a decision is expected soon. Further legal proceedings are likely to take place before the matter is resolved. The Company believes the claims in ~~this~~the case are without factual and legal merit, ~~and intends to defend this lawsuit.~~a position supported by Virgin America’s representations during pre-merger due diligence.



ITEM 1A. RISK FACTORS

~~There have been no material changes to the~~See Part I, Item 1A. "Risk Factors," in our 2021 Form 10-K for a detailed discussion of risk factors affecting ~~our business, financial condition or future results from those set forth in Item 1A."Risk Factors” in our Annual Report on Form 10-K for the year ended~~ ~~December 31, 2016~~.Alaska Air Group.



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

~~This table provides certain information with respect to our purchases of~~Historically, the Company purchased shares ~~of our common stock during the third quarter of 2017.~~

Total Number of
Shares Purchased

Average Price
Paid per Share

Maximum remaining
dollar value of shares
that can be purchased
under the plan
(in millions)
July 1, 2017 - July 31, 2017 5,770
$ 84.37

August 1, 2017 - August 31, 2017 349,645
78.52

September 1, 2017 - September 30, 2017 —
—

Total 355,415
$ 78.61
$ 637

~~The shares were purchased~~ 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 ended on October 1, 2022. When the repurchase program is restarted, the plan has remaining authorization to purchase an additional $456 million in shares.

As of September 30, 2022, a total of 1,882,517 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 (928,126 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. An additional 427,080 warrants were issued in conjunction with a draw on the CARES Act Loan in 2020 at a strike price of $31.61. 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. 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.~~

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.

~~ALASKA AIR GROUP, INC.~~/s/ EMILY HALVERSON
Emily Halverson
~~/s/ CHRISTOPHER M. BERRY~~
~~Christopher M. Berry~~
Vice President Finance and Controller

November ~~2, 2017~~3, 2022

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#

Purchase Agreement No. 3866 between T he Boeing Company and Alaska Airlines, Inc.

10-K

February 14, 2013

10.8

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 portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K Item 601(b)(10).

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*
Alaska Air Group Operational Performance Rewards Plan Description, adopted January 3, 2005; Amended February 14, 2017
10-Q May 5, 2017 10.1
10.2*
Alaska Air Group Performance Based Pay Plan, Amended and Restated January 18, 2017
10-Q May 5, 2017 10.2
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

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 arrangement



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



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	4344
ITEM 4.	CONTROLS AND PROCEDURES	4345
PART II.	OTHER INFORMATION	4446
ITEM 1.	LEGAL PROCEEDINGS	4446
ITEM 1A.	RISK FACTORS	4446
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4446
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	4446
ITEM 4.	MINE SAFETY DISCLOSURES	4447
ITEM 5.	OTHER INFORMATION	4447
ITEM 6.	EXHIBITS	4547
	SIGNATURES	4547



(in millions)	September 30, 2017		December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	144	$	328
Marketable securities	1,596		1,252
Total cash and marketable securities	1,740		1,580
Receivables—net	301		302
Inventories and supplies—net	57		47
Prepaid expenses and other current assets	116		121
Total Current Assets	2,214		2,050

Property and Equipment
Aircraft and other flight equipment	7,590		6,947
Other property and equipment	1,187		1,103
Deposits for future flight equipment	531		545
	9,308		8,595
Less accumulated depreciation and amortization	3,078		2,929
Total Property and Equipment—Net	6,230		5,666

Goodwill	1,934		1,934
Intangible assets	135		143
Other noncurrent assets	226		169
Other Assets	2,295		2,246

Total Assets	$	10,739	$	9,962



	Nine Months Ended September 30,
(in millions)	2017			2016
Cash flows from operating activities:
Net income	$	661		$	700
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	275			281
Stock-based compensation and other	43			19
Changes in certain assets and liabilities:
Changes in deferred tax provision	217			47
Increase in air traffic liability	254			116
Increase in deferred revenue	46			60
Other—net	(139		)	(17		)
Net cash provided by operating activities	1,357			1,206

Cash flows from investing activities:
Property and equipment additions:
Aircraft and aircraft purchase deposits	(679		)	(408		)
Other flight equipment	(70		)	(35		)
Other property and equipment	(92		)	(66		)
Total property and equipment additions, including capitalized interest	(841		)	(509		)
Purchases of marketable securities	(1,408		)	(775		)
Sales and maturities of marketable securities	1,069			638
Other investing activities	38			5
Net cash used in investing activities	(1,142		)	(641		)

Cash flows from financing activities:
Proceeds from issuance of debt	—			1,546
Long-term debt payments	(265		)	(93		)
Common stock repurchases	(50		)	(193		)
Dividends paid	(111		)	(102		)
Other financing activities	27			22
Net cash provided (used) by financing activities	(399		)	1,180
Net increase (decrease) in cash and cash equivalents	(184		)	1,745
Cash and cash equivalents at beginning of year	328			73
Cash and cash equivalents at end of the period	$	144		$	1,818

Supplemental disclosure:
Cash paid during the period for:
Interest (net of amount capitalized)	$	68		$	12
Income taxes	129			321



	September 30, 2017		December 31, 2016
Carrying amount	$	1,024	$	1,179
Fair value	1,034		1,199



	September 30, 2017		December 31, 2016
Current Liabilities:
Other accrued liabilities	$	509	$	484
Other Liabilities and Credits:
Deferred revenue	682		638
Other liabilities	24		21
Total	$	1,215	$	1,143



	Total
Remainder of 2017	$	55
2018	350
2019	422
2020	449
2021	422
Thereafter	1,016
Total	$	2,714



	Aircraft Leases		Facility Leases		Aircraft Purchase Commitments		Capacity Purchase Agreements ^(a)		Aircraft Maintenance Deposits		Aircraft Maintenance and Parts Management
Remainder of 2017	$	77	$	34	$	168	$	21	$	15	$	8
2018	342		73		956		118		61		32
2019	344		65		806		151		65		35
2020	317		63		352		158		68		37
2021	280		55		273		165		63		40
Thereafter	1,263		204		355		1,250		90		—
Total	$	2,623	$	494	$	2,910	$	1,863	$	362	$	152


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



	Three Months Ended September 30, 2017
	Mainline			Regional		Horizon			Consolidating & Other^(a)			Air Group Adjusted^(b)			Special Items^(c)			Consolidated
Operating revenues
Passenger
Mainline	$	1,562		$	—	$	—		$	—		$	1,562		$	—		$	1,562
Regional	—			262		—			—			262			—			262
Total passenger revenues	1,562			262		—			—			1,824			—			1,824
CPA revenues	—			—		112			(112		)	—			—			—
Freight and mail	30			1		1			—			32			—			32
Other—net	242			21		1			—			264			—			264
Total operating revenues	1,834			284		114			(112		)	2,120			—			2,120
Operating expenses
Operating expenses, excluding fuel	1,077			219		105			(112		)	1,289			24			1,313
Economic fuel	328			45		—			—			373			(5		)	368
Total operating expenses	1,405			264		105			(112		)	1,662			19			1,681
Nonoperating income (expense)
Interest income	11			—		—			(2		)	9			—			9
Interest expense	(23		)	—		(4		)	1			(26		)	—			(26		)
Other	5			—		—			—			5			—			5
Total Nonoperating income (expense)	(7		)	—		(4		)	(1		)	(12		)	—			(12		)
Income (loss) before income tax	$	422		$	20	$	5		$	(1	)	$	446		$	(19	)	$	427



	Three Months Ended September 30, 2016
	Mainline			Regional		Horizon			Consolidating & Other^(a)			Air Group Adjusted^(b)			Special Items^(c)				Consolidated
Operating revenues
Passenger
Mainline	$	1,073		$	—	$	—		$	—		$	1,073		$	—			$	1,073
Regional	—			249		—			—			249			—				249
Total passenger revenues	1,073			249		—			—			1,322			—			��	1,322
CPA revenues	—			—		109			(109		)	—			—				—
Freight and mail	30			1		—			—			31			—				31
Other—net	190			21		1			1			213			—				213
Total operating revenues	1,293			271		110			(108		)	1,566			—				1,566
Operating expenses
Operating expenses, excluding fuel	727			202		99			(109		)	919			22				941
Economic fuel	188			34		—			—			222			3				225
Total operating expenses	915			236		99			(109		)	1,141			25				1,166
Nonoperating income (expense)
Interest income	7			—		—			—			7			—				7
Interest expense	(7		)	—		(2		)	(2		)	(11		)	—				(11		)
Other	5			—		—			1			6			—				6
Total Nonoperating income (expense)	5			—		(2		)	(1		)	2			—				2
Income (loss) before income tax	$	383		$	35	$	9		$	—		$	427		$	(25	)		$	402



	Nine Months Ended September 30, 2017
	Mainline			Regional		Horizon			Consolidating & Other^(a)			Air Group Adjusted^(b)			Special Items^(c)			Consolidated
Operating revenues
Passenger
Mainline	$	4,390		$	—	$	—		$	—		$	4,390		$	—		$	4,390
Regional	—			725		—			—			725			—			725
Total passenger revenues	4,390			725		—			—			5,115			—			5,115
CPA revenues	—			—		317			(317		)	—			—			—
Freight and mail	84			3		1			—			88			—			88
Other—net	708			57		3			—			768			—			768
Total operating revenues	5,182			785		321			(317		)	5,971			—			5,971
Operating expenses
Operating expenses, excluding fuel	3,101			625		324			(316		)	3,734			88			3,822
Economic fuel	924			120		—			—			1,044			7			1,051
Total operating expenses	4,025			745		324			(316		)	4,778			95			4,873
Nonoperating income (expense)
Interest income	27			—		—			(2		)	25			—			25
Interest expense	(68		)	—		(9		)	—			(77		)	—			(77		)
Other	11			—		1			—			12			—			12
Total Nonoperating income (expense)	(30		)	—		(8		)	(2		)	(40		)	—			(40		)
Income (loss) before income tax	1,127			40		(11		)	(3		)	1,153			(95		)	1,058



	Nine Months Ended September 30, 2016
	Mainline			Regional		Horizon			Consolidating & Other^(a)			Air Group Adjusted^(b)			Special Items^(c)			Consolidated
Operating revenues
Passenger
Mainline	$	3,036		$	—	$	—		$	—		$	3,036		$	—		$	3,036
Regional	—			682		—			—			682			—			682
Total passenger revenues	3,036			682		—			—			3,718			—			3,718
CPA revenues	—			—		322			(322		)	—			—			—
Freight and mail	79			3		—			—			82			—			82
Other—net	546			57		3			1			607			—			607
Total operating revenues	3,661			742		325			(321		)	4,407			—			4,407
Operating expenses
Operating expenses, excluding fuel	2,107			580		305			(322		)	2,670			36			2,706
Economic fuel	512			90		—			—			602			(9		)	593
Total operating expenses	2,619			670		305			(322		)	3,272			27			3,299
Nonoperating income (expense)
Interest income	19			—		1			—			20			—			20
Interest expense	(23		)	—		(7		)	(3		)	(33		)	—			(33		)
Other	15			—		—			4			19			—			19
Total Nonoperating income (expense)	11			—		(6		)	1			6			—			6
Income (loss) before income tax	1,053			72		14			2			1,141			(27		)	1,114


~~(a)~~			~~Includes consolidating entries, 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 allocations and does not include certain income and charges.


~~(c)~~	~~Includes merger-related costs and mark-to-market fuel-hedge accounting charges.~~



	Forecast Q4 2017	Q4 2016 Combined Comparative^(a)	% Change
Capacity (ASMs in millions)	15,950 - 16,000	14,404	~ 11%
Cost per ASM excluding fuel and special items (cents)	8.50¢ - 8.55¢	8.25¢	~ 3%
Fuel gallons (millions)	204	184	~ 11%
Economic fuel cost per gallon	$1.95	$1.66	~ 17.5%



	Forecast Full Year 2017	2016 Combined Comparative^(a)	% Change
Capacity (ASMs in millions)	62,130 - 62,160	57,953	~ 7.2%
Cost per ASM excluding fuel and special items (cents)	8.19¢ - 8.21¢	8.04¢	~ 2%
Fuel gallons (millions)	795	739	~ 7.5%
Economic fuel cost per gallon	$1.81	$1.54	~ 17.5%


^(a)	~~Refer to our Investor Update issued on October 25, 2017 on Form 8-K for further details of the calculation of the three and twelve months ended December 31, 2016 combined data.~~


^(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)	~~See Combined Comparative information in the accompanying pages for year-over-year comparisons including Virgin America.~~



	Three Months Ended September 30,
	2017	2016 as Reported	2016 Virgin America	2016 Combined	Change
Consolidated:
Revenue passengers (in 000)	11,645	9,054	2,175	11,229	3.7%
RPMs (in 000,000)	13,811	9,601	3,321	12,922	6.9%
ASMs (in 000,000)	16,164	11,212	3,867	15,079	7.2%
Load Factor	85.4%	85.6%	(a)	85.7%	(0.3) pts
PRASM	11.29¢	11.79¢	(a)	11.43¢	(1.2)%
RASM	13.12¢	13.97¢	(a)	13.34¢	(1.6)%
CASMex	7.98¢	8.20¢	(a)	7.90¢	1.0%
FTEs	20,743	14,674	2,888	17,562	18.1%

Mainline:
RPMs (in 000,000)	12,694	8,595	3,321	11,916	6.5%
ASMs (in 000,000)	14,796	9,987	3,867	13,854	6.8%
Load Factor	85.8%	86.1%	(a)	86.0%	(0.2) pts
PRASM	10.56¢	10.75¢	(a)	10.65¢	(0.8)%



	Actual Fleet	Expected Fleet Activity
Aircraft	September 30, 2017	Q4 2017 Additions	Q4 2017 Removals		December 31, 2017	2018-2019 Changes		December 31, 2019
B737 Freighters & Combis^(a)	5	2	(3	)	4	(1	)	3
B737 Passenger Aircraft	148	4	(1	)	151	19		170
Airbus Passenger Aircraft	65	3	—		68	4		72
Total Mainline Fleet	218	9	(4	)	223	22		245
Q400 operated by Horizon	52	—	—		52	(15	)	37
E175 operated by Horizon^(b)	10	—	—		10	23		33
E175 operated by third party^(c)	21	2	—		23	12		35
Total Regional Fleet	83	2	—		85	20		105
Total	301	11	(4	)	308	42		350



	Total Number of Shares Purchased	Average Price Paid per Share		Maximum remaining dollar value of shares that can be purchased under the plan (in millions)
July 1, 2017 - July 31, 2017	5,770	$	84.37
August 1, 2017 - August 31, 2017	349,645	78.52
September 1, 2017 - September 30, 2017	—	—
Total	355,415	$	78.61	$	637