UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2023

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

For the transition period from to

Commission File Number 1-8957

ALASKA AIR GROUP, INC.



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



19300 International Boulevard,	Seattle, ~~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 ¨☐

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

Act.

Large accelerated filerx

☒

Accelerated filer ¨

☐

Non-accelerated filer ¨

(Do not check if a smaller reporting company)

☐

Smaller reporting company ¨

☐

Emerging growth company ¨

☐

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

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

The registrant has ~~123,044,897~~127,910,957 common shares, par value $0.01, outstanding at ~~October 31, 2017~~.

April 30, 2023.

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

ALASKA AIR GROUP, INC.

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2023

TABLE OF CONTENTS

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.~~2022. 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)	March 31, 2023		December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents	$	516	$	338
Marketable securities	1,913		2,079
Total cash and marketable securities	2,429		2,417
Receivables - net	340		296
Inventories and supplies - net	105		104
Prepaid expenses	181		163
Other current assets	44		60
Total Current Assets	3,099		3,040

Property and Equipment
Aircraft and other flight equipment	9,189		9,053
Other property and equipment	1,661		1,661
Deposits for future flight equipment	580		670
	11,430		11,384
Less accumulated depreciation and amortization	4,178		4,127
Total Property and Equipment - Net	7,252		7,257

Other Assets
Operating lease assets	1,534		1,471
Goodwill and intangible assets	2,037		2,038
Other noncurrent assets	374		380
Total Other Assets	3,945		3,889

Total Assets	$	14,296	$	14,186

(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)	March 31, 2023		December 31, 2022
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	206	$	221
Accrued wages, vacation and payroll taxes	431		619
Air traffic liability	1,613		1,180
Other accrued liabilities	908		846
Deferred revenue	1,218		1,123
Current portion of operating lease liabilities	213		228
Current portion of long-term debt	268		276
Total Current Liabilities	4,857		4,493

Long-Term Debt, Net of Current Portion	1,795		1,883

Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion	1,455		1,393
Deferred income taxes	523		574
Deferred revenue	1,325		1,374
Obligation for pension and post-retirement medical benefits	355		348
Other liabilities	297		305
Total Noncurrent Liabilities	3,955		3,994

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: 2023 - 137,006,134 shares; 2022 - 136,883,042 shares, Outstanding: 2023 - 127,243,454 shares; 2022 - 127,533,916 shares	1		1
Capital in excess of par value	587		577
Treasury stock (common), at cost: 2023 - 9,763,498 shares; 2022 - 9,349,944 shares	(692)		(674)
Accumulated other comprehensive loss	(365)		(388)
Retained earnings	4,158		4,300
	3,689		3,816
Total Liabilities and Shareholders' Equity	$	14,296	$	14,186

(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 March 31,
(in millions, except per share amounts)	2023		2022
Operating Revenue
Passenger revenue	$	1,984	$	1,511
Mileage Plan other revenue	154		112
Cargo and other revenue	58		58
Total Operating Revenue	2,196		1,681

Operating Expenses
Wages and benefits	723		606
Variable incentive pay	47		36
Aircraft fuel, including hedging gains and losses	665		347
Aircraft maintenance	124		135
Aircraft rent	59		73
Landing fees and other rentals	152		138
Contracted services	95		78
Selling expenses	66		58
Depreciation and amortization	104		102
Food and beverage service	54		41
Third-party regional carrier expense	52		42
Other	177		152
Special items - fleet transition and other	13		75
Special items - labor and related	51		—
Total Operating Expenses	2,382		1,883
Operating Loss	(186)		(202)

Non-operating Income (Expense)
Interest income	17		7
Interest expense	(28)		(27)
Interest capitalized	7		2
Other - net	(9)		14
Total Non-operating Expense	(13)		(4)
Loss Before Income Tax	(199)		(206)
Income tax benefit	(57)		(63)
Net Loss	$	(142)	$	(143)

Basic Loss Per Share:	$	(1.11)	$	(1.14)
Diluted Loss Per Share:	$	(1.11)	$	(1.14)
Shares used for computation:
Basic	127.501		125.984
Diluted	127.501		125.984

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 March 31,
(in millions)	2023		2022
Net Loss	$	(142)	$	(143)
Other comprehensive income (loss), net of tax
Marketable securities	21		(40)
Employee benefit plans	4		1
Interest rate derivative instruments	(2)		9
Total other comprehensive income (loss), net of tax	$	23	$	(30)

Total Comprehensive Loss, Net of Tax	$	(119)	$	(173)

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
Balance at December 31, 2022	127.534	$	1	$	577	$	(674)	$	(388)	$	4,300	$	3,816
Net loss	—	—		—		—		—		(142)		(142)
Other comprehensive income	—	—		—		—		23		—		23
Common stock repurchase	(0.414)	—		—		(18)		—		—		(18)
Stock-based compensation	—	—		12		—		—		—		12



Stock issued under stock plans	0.123	—		(2)		—		—		—		(2)
Balance at March 31, 2023	127.243	$	1	$	587	$	(692)	$	(365)	$	4,158	$	3,689


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

Net loss	—	—		—		—		—		(143)		(143)
Other comprehensive loss	—	—		—		—		(30)		—		(30)

Stock-based compensation	—	—		13		—		—		—		13



Stock issued under stock plans	0.182	—		(4)		—		—		—		(4)
Balance at March 31, 2022	126.088	$	1	$	503	$	(674)	$	(292)	$	4,099	$	3,637

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Three Months Ended March 31,
(in millions)		2023		2022
Cash Flows from Operating Activities:
Net loss		$	(142)	$	(143)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		104		102
Stock-based compensation and other		23		5
Special items - fleet transition and other		13		75
Special items - labor and related		51		—
Changes in certain assets and liabilities:
Changes in deferred income taxes		(56)		(58)
Increase in accounts receivable		(44)		(112)
Increase in air traffic liability		433		480
Increase in deferred revenue		46		74


Other - net		(206)		(136)
Net cash provided by operating activities		222		287
Cash Flows from Investing Activities:
Property and equipment additions
Aircraft and aircraft purchase deposits		(50)		(207)
Other flight equipment		(50)		(24)
Other property and equipment		(24)		(57)
Total property and equipment additions		(124)		(288)
Purchases of marketable securities		(201)		(552)
Sales and maturities of marketable securities		388		880

Other investing activities		(3)		(1)
Net cash provided by investing activities		60		39
Cash Flows from Financing Activities:

Long-term debt payments		(96)		(170)
Common stock repurchases		(18)		—

Other financing activities		—		2
Net cash used in financing activities		(114)		(168)
Net increase in cash and cash equivalents		168		158
Cash, cash equivalents, and restricted cash at beginning of period		369		494
Cash, cash equivalents, and restricted cash at end of the period		$	537	$	652

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


	Three Months Ended March 31,
(in millions)		2023		2022
Supplemental disclosure:
Cash paid during the period for:
Interest, net of amount capitalized		$	32	$	35


Non-cash transactions:
Right-of-use assets acquired through operating leases		111		158

Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents		516		628
Restricted cash included in Prepaid expenses and Other noncurrent assets		21		24
Total cash, cash equivalents, and restricted cash at end of the period		$	537	$	652

~~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 (McGee), a ground services subsidiary of Alaska, and ~~starting December 14, 2016, Virgin America. The Company conducts substantially all of its operations through these subsidiaries.~~other immaterial business units. 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~~.2022. 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~~March 31, 2023 and the results of operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~.2022. 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 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~~March 31, 2023 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~~first quarter of 2022, 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. All remaining A320 and Q400 aircraft were removed from ~~Contracts with Customers" (Topic 606), which requires an entity~~operating service in January 2023. Alaska operates ten A321neo aircraft, and plans to ~~recognize~~remove them from its operating fleet by the end of the third quarter of 2023.

Valuation of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the total carrying amount of ~~revenue to which it expects~~an asset or asset group may not be recoverable.

In 2023, charges will continue to be ~~entitled~~recorded 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 whether the Company is considered the principal or the agent in a revenue transaction where a third party is providing goods or services to a customer. Entities are permitted 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~~certain accelerated aircraft ownership expenses related to the ~~financial statements will be to Mileage Plan™ revenues and liabilities. The Company currently uses the incremental cost approach for miles earned through travel. As this approach will be eliminated~~A321neo fleet consistent with the ~~standard,~~time period the Company will be required to allocate a portion 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 revenues 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 theyaircraft 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.

~~The adoption of the new standard is also~~ expected to ~~result~~remain in ~~a change in income statement classification of the majority of ancillary revenues from Other revenue to Passenger revenue. This~~operation. Charges 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 nowalso be recorded atto reflect adjustments to estimated costs to return 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.

A320 fleet. The Company continues to evaluate options for the A321neo aircraft and ~~model~~will consider the ~~full impact~~need for further impairment or adjustments for owned and leased long-lived assets whenever indicators of impairment are present.

The following table summarizes our special charges for fleet transition costs for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
(in millions)	2023		2022
Lease return costs and other expenses	$	7	$	5
Accelerated aircraft ownership expenses	6		—
Impairment of long-lived assets	—		70
Special items - fleet transition and other	$	13	$	75

Subsequent to quarter end, Alaska signed agreements to exit the existing leases for four of the ~~standard~~ten leased A321neo aircraft from one lessor, and ~~will apply~~subsequently purchase the ~~full retrospective transition method.~~aircraft with intent to resell. The ~~overall impact to equity as~~settlement of the ~~beginning~~leases and purchase of the ~~retroactive reporting period, including the changes discussed above, as well as other less material changes, is~~aircraft are expected to ~~be between $160~~occur in the fourth quarter of 2023. The transactions will result in cash outflows of approximately $250 million ~~and $190 million.~~

~~In February 2016,~~in 2023, of which approximately half will settle the ~~FASB issued ASU 2016-02, "Leases" (Topic 842), which requires lessees to recognize assets and liabilities for leases currently classified as operating leases. Under~~outstanding lease liability, with the ~~new standard, a lessee will recognize a liability on the balance sheet~~remainder representing the ~~lease payments owed,~~purchase price of the aircraft. The agreements were not contractually obligated at March 31, 2023, and ~~a right-of-use-asset representing its right to use~~are not reflected within the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. At this time, the Company believes the most significant impact to theconsolidated financial statements ~~will relate to~~or accompanying notes.

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents 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 continue to be assessed for impact of the ASU. The new standard is effective for the Company on January 1, 2019. Early adoption of the standard is permitted. The Company has determined that it will not early adopt the standard.

In March 2016, 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 America. The Company believes the acquisition of Virgin America will provide broader national reach and position it 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.certain commissions.

~~Merger-related costs~~

The Company ~~incurred pretax merger-related costs~~disaggregates revenue by segment in Note 10. 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 March 31,
	2023		2022
Passenger ticket revenue, including ticket breakage, net of taxes and fees	$	1,648	$	1,232
Passenger ancillary revenue	104		91
Mileage Plan passenger revenue	232		188
Total Passenger revenue	$	1,984	$	1,511

Mileage Plan Loyalty Program

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


	Three Months Ended March 31,
	2023		2022
Passenger revenue	$	232	$	188
Mileage Plan other revenue	154		112
Total Mileage Plan revenue	$	386	$	300

Cargo and Other Revenue

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


	Three Months Ended March 31,
	2023		2022
Cargo revenue	$	29	$	29
Other revenue	29		29
Total Cargo and other revenue	$	58	$	58

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $485 million and ~~$22~~$390 million from the prior year-end air traffic liability balance for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively,~~2022.

Mileage Plan assets and $88 million and $36 million for the nine months ended September 30, 2017 and 2016, respectively. Costs classified as merger-related are directly attributable to merger activities 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.~~payments are collected. The Company had $94 million of such receivables as of March 31, 2023 and $83 million as of December 31, 2022.

~~Fair values~~The table below presents a roll forward of the ~~assets acquired and the liabilities assumed~~

The transaction has been accounted for 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 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 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 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):


	Three Months Ended March 31,
	2023		2022
Total Deferred Revenue balance at January 1	$	2,497	$	2,358
Travel miles and companion certificate redemption - Passenger revenue	(218)		(176)
Miles redeemed on partner airlines - Other revenue	(21)		(9)
Increase in liability for mileage credits issued	285		259
Total Deferred Revenue balance at March 31	$	2,543	$	2,432

September 30, 2017 December 31, 2016
Cash and cash equivalents $ 645
$ 645
Receivables 54
44
Prepaid expenses and other current assets 18
16
Property and equipment—provisional 561
560
Intangible assets—provisional 141
143
Goodwill—provisional 1,934
1,934
Other assets 89
84
Total assets 3,442
3,426

Accounts payable 22
22
Accrued wages, vacation and payroll taxes 54
51
Air traffic liabilities 172
172
Other accrued liabilities—provisional 197
196
Current portion of long-term debt 125
125
Long-term debt, net of current portion 360
360
Deferred income taxes—provisional (307 ) (304 )
Deferred revenue 126
126
Other liabilities—provisional 97
82
Total liabilities 846
830

Total purchase price $ 2,596
$ 2,596

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,~~March 31, 2023, total cost basis for all marketable securities was ~~$1.6 billion. There were no significant differences between the cost basis and~~$2.0 billion, compared to a total fair value of $1.9 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 industry and duration exposure, credit ratings of the securities, liquidity profiles, and other observable information as of March 31, 2023.

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


	March 31, 2023						December 31, 2022
	Level 1		Level 2		Total		Level 1		Level 2		Total

Assets
Marketable securities
U.S. government and agency securities	$	520	$	—	$	520	$	505	$	—	$	505
Equity mutual funds	6		—		6		5		—		5
Foreign government bonds	—		25		25		—		25		25
Asset-backed securities	—		235		235		—		261		261
Mortgage-backed securities	—		160		160		—		196		196
Corporate notes and bonds	—		909		909		—		1,025		1,025
Municipal securities	—		58		58		—		62		62
Total Marketable securities	526		1,387		1,913		510		1,569		2,079
Derivative instruments
Fuel hedge contracts - call options	—		21		21		—		44		44
Interest rate swap agreements	—		12		12		—		15		15
Total Assets	$	526	$	1,420	$	1,946	$	510	$	1,628	$	2,138

September 30, 2017 Level 1 Level 2 Total
Assets
Marketable securities
U.S. government and agency securities $ 359
$ —
$ 359
Foreign government bonds —
48
48
Asset-backed securities —
232
232
Mortgage-backed securities —
113
113
Corporate notes and bonds —
828
828
Municipal securities —
16
16
Total Marketable securities 359
1,237
1,596
Derivative instruments
Fuel hedge call options —
10
10
Interest rate swap agreements —
8
8
Total Assets 359
1,255
1,614

Liabilities
Derivative instruments
Interest rate swap agreements —
(11 ) (11 )
Total Liabilities —
(11 ) (11 )

December 31, 2016 Level 1 Level 2 Total
Assets
Marketable securities
U.S. government and agency securities $ 287
$ —
$ 287
Foreign government bonds —
36
36
Asset-backed securities —
138
138
Mortgage-backed securities —
89
89
Corporate notes and bonds —
691
691
Municipal securities —
11
11
Total Marketable securities 287
965
1,252
Derivative instruments
Fuel hedge call options —
20
20
Total Assets 287
985
1,272

Liabilities
Derivative instruments
Interest rate swap agreements —
(5 ) (5 )
Total Liabilities —
(5 ) (5 )

The Company uses 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 interest LIBOR-based ~~interest~~and SOFR-based forward rates at period end multiplied by the total notional value.

Activity and Maturities for Marketable Securities

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Proceeds from sales and maturities $ 528
$ 280
$ 1,069
$ 638

Maturities for marketable securities (in millions):


March 31, 2023	Cost Basis		Fair Value
Due in one year or less	$	425	$	415
Due after one year through five years	1,532		1,465
Due after five years	28		27

No maturity date	5		6
Total	$	1,990	$	1,913

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 of September 30, 2017.~~

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 March 31, 2023, 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 $564 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as ~~certain inputs used are unobservable.~~

~~Fixed-rate debt that~~it is not ~~carried at fair value~~actively traded and is valued using discounted cash flows which is an unobservable input.

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


	March 31, 2023		December 31, 2022


Fixed-rate debt	$	1,591	$	1,660

Estimated fair value	$	1,435	$	1,473

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. No material impairment ~~was recognized~~charges were recorded in the three ~~and nine~~ months ended ~~September 30, 2017 or September 30, 2016.~~

~~NOTE 4. FREQUENT FLYER PROGRAMS~~

~~Frequent flyer program deferred revenue and liabilities included~~March 31, 2023. Refer to Note 2 for details regarding impairment charges recorded in the ~~consolidated balance sheets (in millions):~~three months ended March 31, 2022.

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

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Passenger revenues $ 94
$ 73
$ 276
$ 215
Other—net revenues 122
107
369
318
Total $ 216
$ 180
$ 645
$ 533

NOTE 5. LONG-TERM DEBT

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


	March 31, 2023			December 31, 2022
Fixed-rate notes payable due through 2029	$	100		$	113
Fixed-rate PSP notes payable due through 2031	600			600
Fixed-rate EETC payable due through 2025 & 2027	891			947
Variable-rate notes payable due through 2029	487			514
Less debt issuance costs	(15)			(15)
Total debt	2,063			2,159
Less current portion	268			276
Long-term debt, less current portion	$	1,795		$	1,883

Weighted-average fixed-interest rate	3.5		%	3.5		%
Weighted-average variable-interest rate	6.1		%	5.8		%

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 %
Approximately $286 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at March 31, 2023, resulting in an effective weighted-average interest rate for the full debt portfolio of 3.7%.

During the ~~nine~~three months ended ~~September 30, 2017~~,March 31, 2023, the Company made scheduled debt payments of ~~$265~~$94 million and prepayments of $2 million.

Debt Maturity

At ~~September 30, 2017~~,March 31, 2023, long-term debt principal payments for the next five years and thereafter are as follows (in millions):


	Total
Remainder of 2023	$	185
2024	243
2025	296
2026	176
2027	535
Thereafter	643
Total Principal Payments	$	2,078

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

Bank Lines of Credit

~~The Company~~Alaska has three credit facilities ~~with availability~~ totaling ~~$475 million. All three~~$486 million as of March 31, 2023. 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.~~March 31, 2023.

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 March 31,
	2023		2022
Service cost	$	7	$	11
Pension expense included in Wages and benefits	7		11

Interest cost	27		16
Expected return on assets	(28)		(32)

Recognized actuarial loss	6		2
Pension expense included in Non-operating Income (Expense)	$	5	$	(14)

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~~March 31, 2023 (in millions):


	Aircraft-Related Commitments(a)		Capacity Purchase Agreements and Other Obligations (b)
Remainder of 2023	$	1,742	$	154
2024	1,393		224
2025	1,440		227
2026	689		219
2027	335		220
Thereafter	598		739
Total	$	6,197	$	1,783

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

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.~~

~~Lease Commitments~~

~~Aircraft lease commitments include future obligations for all~~(b)Primarily comprised of ~~the Company's operating airlines—Alaska, Virgin America and Horizon,~~non-lease costs associated with capacity purchase agreements, as well as ~~aircraft leases operated by third-parties. At~~ ~~September 30, 2017, the Company had lease contracts for 10~~other various sponsorship agreements and investment commitments.

Alaska has received information from 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~~that certain B737 deliveries ~~of A321neo aircraft through 2018, as well as 14 scheduled lease deliveries of E175 aircraft through 2018~~in 2023 are expected to be ~~flown by Skywest. All lease contracts have remaining non-cancelable lease terms ranging from 2017 to 2030.~~delayed into 2024. The ~~Company has~~fleet commitments outlined above reflect 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.~~expected impact of these delays.

~~Facility lease commitments primarily include airport and terminal facilities and building leases. Total rent expense for aircraft 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 ~~Purchase~~ Commitments

Aircraft purchase commitments include ~~non-cancelable~~ contractual commitments for ~~aircraft~~aircrafts and engines. AsDetails for contractual aircraft commitments as of ~~September 30, 2017~~, the Company had commitments to purchase 48 B737 aircraft (16 B737 NextGen aircraft and 32 B737 MAX aircraft, with deliveries in the remainder of 2017 through 2023) and 23 E175 aircraft with deliveries in 2018 through 2019, which reflects Horizon's deferral of three E175 aircraft from 2017 to 2018. The Company also has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2020 through 2022. In addition, the Company has options to purchase 37 B737 aircraft and 30 E175 aircraft. The cancelable purchase commitments and option paymentsMarch 31, 2023 are ~~not reflected~~outlined in the table ~~above.~~below.

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


	Firm Orders	Options and Other Rights	Total
Aircraft Type	2023-2027	2025-2030	2023-2030
B737	102	105	207
E175	17	13	30
Total	119	118	237

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~~Alaska has contracts for maintenance on ~~actual~~its B737-800 and B737-900ER aircraft ~~utilization.~~

~~Subsequent to September 30, 2017, Alaska entered into~~engines through 2026 and 2032, respectively. Horizon has a ~~similar~~ contract for maintenance on its ~~B737-800~~E175 aircraft ~~engines. Payments under this agreement are not reflected in the table above.~~engines through 2033.

Contingencies

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

In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour ~~laws. Plaintiffs received~~laws (Bernstein v. Virgin America, Inc.). 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, remanding the matter to the district court for further consideration. In December 2022, the district court issued a ~~motion~~final total judgment amount of $31 million. Additional proceedings will determine the attorneys’ fee award due to plaintiffs’ counsel. The Company holds an accrual for ~~summary~~$37 million in Other accrued liabilities on the condensed consolidated balance sheets.

In June 2022, the U.S. Supreme Court declined to take the Company’s appeal for a conclusive ruling that the California laws on which the judgment ~~seeking~~is based are invalid as applied to ~~dismiss~~airlines. The decision leaves open the possibility that other states in the Ninth Circuit judicial district may attempt to apply similar laws to airlines, and, in fact, a lawsuit based on similar claims to those asserted in Bernstein has been initiated by a Washington-based Alaska Airlines flight attendant (Krueger v. Alaska Airlines, Inc.). The Company plans to assert all ~~claims~~available legal defenses, but to date has not determined its probable and estimable liability in this matter.

The Company is analyzing a range of potential options to balance new compliance obligations with operational and labor considerations. Some or all of these solutions may have an 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, pursuant to that agreement's venue provision, 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 and irrespective of Alaska's actual use (or non-use) of the mark. The possible range of contractual liability is between $10 million and $160 million. Alaska stopped making royalty payments in 2019 after ending all use of the Virgin ~~America’s motion.~~brand. On February 16, 2023, the commercial court issued a ruling adopting Virgin Group’s interpretation of the license agreement. The Company believes the claims in ~~this~~the case are without factual and legal merit, a position supported by Virgin America’s representations during pre-merger due diligence, and ~~intends~~has made an application to ~~defend this lawsuit.~~

~~Management believes~~appeal in the ~~ultimate disposition~~English courts. Alaska also commenced a separate claim for breach of ~~these matters is not likely to materially~~the agreement against the Virgin Group that may affect the ~~Company's financial position or results of operations. This forward-looking statement is based on management's current understanding of~~Company’s total liability in 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.~~matter.

NOTE 8. SHAREHOLDERS' EQUITY

~~Dividends~~

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~~In March 2020, subject to restrictions under the CARES Act, the Company suspended the share repurchase program ~~was paused in the second quarter of 2016 in anticipation of the acquisition of Virgin America.~~indefinitely. These restrictions ended on October 1, 2022. The Company ~~resumed~~restarted the share repurchase program in February 2023 pursuant to the ~~second quarter of 2017.~~existing repurchase program. As of ~~September 30, 2017,~~March 31, 2023, the Company has repurchased ~~4.7~~8 million shares for ~~$363~~$562 million under this program. ~~Subsequent to September 30, 2017, the Company repurchased an additional 369,182 shares for $25 million.~~

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


	Three Months Ended March 31,
	2023			2022
	Shares	Amount		Shares	Amount
2015 Repurchase Program—$1 billion	413,554	$	18	—	$	—

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 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.

As of March 31, 2023, there are 1,882,517 total warrants outstanding, with a weighted average strike price of $39.06. The value of the warrants was estimated using a Black-Scholes option pricing model. The total fair value of all outstanding warrants was $30 million, recorded in stockholders' equity at issuance.

Loss Per Share

Loss per share is calculated by dividing net loss by the average number of common shares outstanding. For the three months ended March 31, 2023 and March 31, 2022, anti-dilutive shares excluded from the calculation of loss per share were not material.

NOTE 9. ACCUMULATED OTHER COMPREHENSIVE LOSS

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Shares Amount Shares Amount Shares Amount Shares Amount
2015 Repurchase Program—$1 billion 355,415
$ 28
—
$ —
612,095
$ 50
2,594,809
$ 193

~~Accumulated Other Comprehensive Loss~~

~~Components~~A roll forward of the amounts included in accumulated other comprehensive loss, net of tax (in millions):

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")~~

~~Diluted EPS~~, is ~~calculated by dividing net income by~~shown below for 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, using the treasury-stock method. For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, anti-dilutive shares excluded from the calculation of EPS were not material.~~2022:


	Marketable Securities		Employee Benefit Plan		Interest Rate Derivatives		Total
Balance at December 31, 2022, net of tax effect of $122	$	(80)	$	(319)	$	11	$	(388)
Reclassifications into earnings, net of tax effect of ($2)	5		4		—		9
Change in value, net of tax effect of ($3)	16		—		(2)		14
Balance at March 31, 2023, net of tax effect of $117	$	(59)	$	(315)	$	9	$	(365)

Balance at December 31, 2021, net of tax effect of $83	$	(4)	$	(252)	$	(6)	$	(262)
Reclassifications into earnings, net of tax effect of $0	2		1		—		3
Change in value, net of tax effect of $10	(42)		—		9		(33)
Balance at March 31, 2022, net of tax effect of $93	$	(44)	$	(251)	$	3	$	(292)

NOTE 9.10. 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 March 31, 2023
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenue
Passenger revenue	$	1,690	$	294	$	—	$	—	$	1,984		$	—	$	1,984
CPA revenue	—		—		78		(78)		—			—		—
Mileage Plan other revenue	143		11		—		—		154			—		154
Cargo and other revenue	57		—		—		1		58			—		58
Total Operating Revenue	1,890		305		78		(77)		2,196			—		2,196
Operating Expenses
Operating expenses, excluding fuel	1,390		256		84		(77)		1,653			64		1,717
Fuel expense	561		85		—		(1)		645			20		665
Total Operating Expenses	1,951		341		84		(78)		2,298			84		2,382





Non-operating Income (Expense)	(6)		—		(8)		1		(13)			—		(13)
Income (Loss) Before Income Tax	$	(67)	$	(36)	$	(14)	$	2	$	(115)		$	(84)	$	(199)
Pretax Margin									(5.2)		%			(9.1)		%

	Three Months Ended March 31, 2022
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenue
Passenger revenue	$	1,243	$	268	$	—	$	—	$	1,511		$	—	$	1,511
CPA revenue	—		—		94		(94)		—			—		—
Mileage Plan other revenue	100		12		—		—		112			—		112
Cargo and other revenue	57		—		—		1		58			—		58
Total Operating Revenue	1,400		280		94		(93)		1,681			—		1,681
Operating Expenses
Operating expenses, excluding fuel	1,194		262		99		(94)		1,461			75		1,536
Fuel expense	381		73		—		—		454			(107)		347
Total Operating Expenses	1,575		335		99		(94)		1,915			(32)		1,883





Non-operating Income (Expense)	1		—		(5)		—		(4)			—		(4)
Income (Loss) Before Income Tax	$	(174)	$	(55)	$	(10)	$	1	$	(238)		$	32	$	(206)
Pretax Margin									(14.2)		%			(12.3)		%

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

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
(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.

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

(c)Includes special items and mark-to-market fuel hedge accounting adjustments.


~~(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.~~

Total assets were as follows (in millions):


	March 31, 2023		December 31, 2022
Mainline	$	19,896	$	19,733
Horizon	1,158		1,157
Consolidating & Other	(6,758)		(6,704)
Consolidated	$	14,296	$	14,186

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

OVERVIEW

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~~.2022. This overview summarizes the MD&A, which includes the following sections:

~~Third~~•First Quarter Review—highlights from the ~~third~~first quarter of ~~2017~~2023 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~~.March 31, 2023. 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.~~

2023.

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

~~THIRD~~FIRST QUARTER REVIEW

~~Our~~First Quarter Results

We recorded consolidated pretax ~~income was $427 million during~~loss for the ~~third~~first quarter of ~~2017,~~2023 under GAAP of $199 million, compared to ~~$402~~consolidated pretax loss of $206 million in the ~~third~~first quarter of ~~2016.~~2022. On an adjusted basis, we reported consolidated pretax loss for the quarter of $115 million, compared to consolidated pretax loss of $238 million in 2022.

We made progress in the first quarter on projects aimed at returning our airlines to foundational strengths of operational excellence, disciplined cost management, and high productivity. Compared to 2022, productivity has increased 6%, reflecting the stabilization of our business. When combined with doubling pilot training throughput and reducing attrition, utilization of our aircraft grew 14% year-over-year. Also during the quarter, we retired our remaining A320 and Q400 aircraft, and more recently we established September as the retirement date for our ten A321neo aircraft. Although total fleet count has decreased since the first quarter of 2022, the addition of 24 B737-9 aircraft in that time has enabled efficient growth, with 28 more seats per aircraft than the A320s they replace. The culmination of this progress resulted in first quarter capacity restoration to pre-pandemic levels.

Inflation and other structural cost pressures continued to have a significant impact on our financial results in the first quarter. Wages and benefits increased 19% compared to the prior year, driven largely by higher wage rates following the execution of five labor agreements since March 31, 2022. Fuel costs remained elevated during the quarter, with our economic cost per gallon 30% higher compared to the prior year. Departure-related costs have also continued to rise consistent with our increase in pretax income of $25 million was primarily driven by an increase in revenues of $554 million, partially offset by a $372 million increase in non-fuel expense and a $143 million increase in fuel expense.capacity.

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 of operations for the three months ended September 30, 2016 do not include those of Virgin America.

See “Results of Operations” below for further discussion of changes in ~~revenues~~revenue and operating expenses as compared to 2022, 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 of 2017, our on-time performance was 85.0% for Alaska, 73.3% for Virgin America and 78.6% for Horizon. Air traffic control issues and airport runway construction have negatively impacted our on-time performance, particularly in Seattle, Los Angeles, and San Francisco where we have a large concentration of flights. While these challenges negatively impact all airlines that operate 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. As a result of these adjustments to the flight schedule and our recent pilot hiring efforts, we anticipate that operational headwinds will be behind us by year end.

~~New Markets~~

We launched 20 new routes during the quarter, which is the most we have ever launched 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.~~

Labor Update

~~Each of our~~In January 2023, McGee Air Services fleet and ramp service employees 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~~International Association of Machinists and Aerospace Workers' Union ratified a two-year contract extension with enhanced wages and benefits. Also in January, Alaska executed two Letters of Agreement (LOA) with its Mainline pilots, 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~~to drive productivity improvement and maintain sufficient pilots on the A321neo aircraft until their ~~respective positions to~~retirement in September. The first LOA increases payouts of unused sick leave upon retirement. As a third-party arbitration panel during the third quarter. On October 30, 2017, we received a decision from the arbitration panel on new wage rates and retirement contributions for pilots of Alaska Airlines and Virgin America. This award is binding and is effective November 1, 2017. The wage rates equate 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 12% at Virgin America to 15% effective immediately and to 15.5% effective January 1, 2019.

~~We estimate the impact~~result of this ~~new contract over the status quo to be an incremental cost~~change, we recorded a

one-time special charge of ~~approximately $24~~$51 million for the ~~remainder~~three months ended March 31, 2023. Refer to the 'Results of ~~2017, $150 million in 2018, and $180 million in 2019. Over~~Operations' section below for additional details. The second LOA provides increased wage rates to certain Airbus pilots as well as other quality-of-life enhancements through September that will end with the ~~life~~retirement 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.~~fleet.

Outlook

As we move into the second quarter and the remainder of the year, work executed on our strategic priorities positions our airlines well for productive growth. We ~~completed the acquisition of Virgin America on December 14, 2016, positioning us as the fifth largest airline~~continue to see strength in the ~~U.S. with~~overall demand environment in the near-term, and as 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,result, we anticipate total revenue in the second quarter to be up 2.5% to 5.5% compared to 2022 on capacity growth of ~~2018. The single PSS has been accelerated from later in 2018 and is expected~~6% 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 sometime9%. Labor deals executed in late ~~2019. Over~~2022 and a new power-by-the-hour engine maintenance agreement pressure unit cost performance in the ~~next several months~~second quarter as compared to the prior year. Given these headwinds, we ~~will focus on enhancing~~expect second quarter CASMex to be up 1% to 3% compared to 2022. Turning to the full year, we continue to expect achievement of our ~~guest experience and will adopt certain aspects~~previous guidance of ~~Virgin America’s brand elements, including enhanced inflight connectivity, inflight entertainment content, mood lighting, music and the relentless desire~~adjusted pretax margins of 9% to ~~make flying a different experience for guests.~~ 12%.

We will continue to ~~enhance~~respond to emerging information and trends, which could lead to changes in the guidance we have provided above. As we leverage our ~~fresh, healthy, West Coast-inspired onboard food~~network, Mileage Plan program, and ~~beverage menus and expect~~fleet for growth, 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~~people 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~~keeping costs low and ~~synergies created by combining these two great airlines.~~running a strong operation. These are competitive advantages we have cultivated over many years that will continue to serve us in 2023 and beyond.

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:

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.~~

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 other individual~~aircraft fuel and special ~~revenues or expenses~~items is useful information to investors because:

•By excluding fuel expense and ~~certain~~ 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 as we focus on cost-reduction and ~~our non-fuel cost~~productivity initiatives. 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 expense and ~~certain~~ special items ~~such as merger-related costs,~~ 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.~~

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

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

•Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of ~~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 March 31,
	2023	2022	Change
Consolidated Operating Statistics:(a)
Revenue passengers (000)	9,852	8,694	13%
RPMs (000,000) "traffic"	12,554	10,586	19%
ASMs (000,000) "capacity"	15,705	13,783	14%
Load factor	79.9%	76.8%	3.1 pts
Yield	15.80¢	14.27¢	11%
RASM	13.98¢	12.20¢	15%
CASMex(b)	10.53¢	10.61¢	(1)%
Economic fuel cost per gallon(b)	$3.41	$2.62	30%
Fuel gallons (000,000)	189	173	9%
ASMs per fuel gallon	83.1	79.9	4%
Departures (000)	95.4	93.2	2%
Average full-time equivalent employees (FTEs)	22,978	21,582	6%
Mainline Operating Statistics:
Revenue passengers (000)	7,833	6,566	19%
RPMs (000,000) "traffic"	11,669	9,512	23%
ASMs (000,000) "capacity"	14,610	12,387	18%
Load factor	79.9%	76.8%	3.1 pts
Yield	14.48¢	13.06¢	11%
RASM	12.94¢	11.30¢	15%
CASMex(b)	9.52¢	9.64¢	(1)%
Economic fuel cost per gallon(b)	$3.39	$2.61	30%
Fuel gallons (000,000)	166	146	14%
ASMs per fuel gallon	88.0	85.0	4%
Departures (000)	62.6	55.8	12%
Average full-time equivalent employees (FTEs)	17,785	16,336	9%
Aircraft utilization	11.1	9.5	17%
Average aircraft stage length	1,366	1,334	2%
Operating fleet(d)	219	225	(6) a/c
Regional Operating Statistics:(c)
Revenue passengers (000)	2,019	2,128	(5)%
RPMs (000,000) "traffic"	885	1,075	(18)%
ASMs (000,000) "capacity"	1,095	1,396	(22)%
Load factor	80.8%	77.0%	3.8 pts
Yield	33.19¢	24.96¢	33%
RASM	27.82¢	20.04¢	39%
Departures (000)	32.8	37.4	(12)%
Operating fleet(d)	75	98	(23) 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 September 30, 2017 and not for the prior period.~~third-party carriers.

(d)Excludes all aircraft removed from operating service.

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


^(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.~~

COMPARISON OF THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2023 TO THREE MONTHS ENDED ~~SEPTEMBER 30, 2016~~MARCH 31, 2022

Our consolidated net ~~income~~loss for the three months ended ~~September 30, 2017~~March 31, 2023 was ~~$266~~$142 million, or ~~$2.14~~$1.11 per ~~diluted~~ share, compared to a consolidated net ~~income~~loss of ~~$256~~$143 million, or ~~$2.07~~$1.14 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.March 31, 2022.

Excluding the impact of ~~merger-related costs~~special items and mark-to-market fuel hedge adjustments, our adjusted net ~~income~~loss for the ~~third~~first quarter of ~~2017~~2023 was ~~$278~~$79 million, or ~~$2.24~~$0.62 per ~~diluted~~ share, compared to an adjusted net ~~income~~loss of ~~$272~~$167 million, or ~~$2.20~~$1.33 per ~~diluted~~ share, in the ~~third~~first quarter of ~~2016.~~2022. The following ~~tables reconcile~~table reconciles our adjusted net ~~income and adjusted earnings~~loss per ~~diluted~~ share ~~("EPS")~~(EPS) to amounts as reported in accordance with GAAP:


	Three Months Ended March 31,
	2023				2022
(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net loss per share	$	(142)	$	(1.11)	$	(143)	$	(1.14)
Mark-to-market fuel hedge adjustments	20		0.16		(107)		(0.85)
Special items - fleet transition and other	13		0.10		75		0.60
Special items - labor and related	51		0.40		—		—
Income tax effect of reconciling items above	(21)		(0.17)		8		0.06
Non-GAAP adjusted net loss per share	$	(79)	$	(0.62)	$	(167)	$	(1.33)

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 March 31,
(in cents)	2023		2022		% Change
Consolidated:
CASM	15.17	¢	13.66	¢	11	%
Less the following components:
Aircraft fuel, including hedging gains and losses	4.24		2.51		69	%
Special items - fleet transition and other	0.08		0.54		(85)	%
Special items - labor and related	0.32		—		NM


CASM excluding fuel and special items	10.53	¢	10.61	¢	(1)	%

Mainline:
CASM	13.93	¢	11.89	¢	17	%
Less the following components:
Aircraft fuel, including hedging gains and losses	3.97		2.21		80	%

Special items - fleet transition and other	0.09		0.04		125	%
Special items - labor and related	0.35		—		NM


CASM excluding fuel and special items	9.52	¢	9.64	¢	(1)	%

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~~

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)%


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

~~COMBINED COMPARATIVE OPERATING REVENUES~~

Total operating ~~revenues~~ revenue increased ~~$554~~ $515 million, or ~~35%~~31%, during the ~~third~~first quarter of ~~2017~~2023 compared to the same period in ~~2016. On a Combined Comparative basis, total operating revenues increased $108 million or 5%.~~2022. The changes ~~including the reconciliation of the impact of Virgin America on the comparative results,~~ are summarized in the following table:


	Three Months Ended March 31,
(in millions)	2023		2022		% Change
Passenger revenue	$	1,984	$	1,511	31	%
Mileage Plan other revenue	154		112		38	%
Cargo and other revenue	58		58		—	%
Total Operating Revenues	$	2,196	$	1,681	31	%

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~~first quarter of ~~2017~~2023 increased by ~~$489~~$473 million, or ~~46%~~31%, on a ~~48%~~19% increase in ~~capacity~~passenger traffic and a 11% increase in ticket yield. The first quarter year-over-year comparison benefits from suppressed passenger revenue in 2022 as a result of the omicron variant. Following the first quarter of 2022, a surge in travel demand drove significant increases in ticket sales and passenger revenue trends, which continues to drive strong revenue performance in the first quarter of 2023.

We expect to see further growth to Passenger revenue as we progress through 2023 driven by ~~the acquisition of Virgin America, partially offset by a 2% decrease in unit revenues.~~ high demand and increased capacity.

Mileage Plan other revenue

On a ~~Combined Comparative~~consolidated basis, ~~Mainline passenger~~Mileage Plan other revenue for the ~~third~~first quarter of ~~2017~~2023 increased by 6%, due to a 7% 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 driven by our continued network expansion and aircraft added to our fleet since the third quarter of 2016. The decrease 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 in our California markets.

~~Passenger Revenue—Regional~~

Regional passenger revenue increased 5% 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~~$42 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.38%. The ~~remainder of the~~ increase was due to higher ~~ancillary revenues. On a Combined Comparative basis, Other—net~~commissions received from our bank card partners driven by increased consumer spending and increased credit card acquisitions.

We expect to see continued strength in Mileage Plan other revenue for the remainder of 2023, enabled by higher commissions from increased ~~$7 million, or 3%.~~card spend.

~~COMBINED COMPARATIVE~~ OPERATING EXPENSES

Total operating expenses increased ~~$515~~$499 million, or ~~44%~~27%, compared to the ~~third~~first quarter of ~~2016. On a Combined Comparative basis, total operating expenses increased $159 million, or 10%.~~2022. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:


	Three Months Ended March 31,
(in millions)	2023		2022		% Change
Fuel expense	$	665	$	347	92	%
Non-fuel operating expenses, excluding special items	1,653		1,461		13	%

Special items - fleet transition and other	13		75		(83)	%
Special items - labor and related	51		—		NM


Total Operating Expenses	$	2,382	$	1,883	27	%

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~~$318 million, or ~~64%~~92%, compared to the ~~third~~first quarter of ~~2016. On a Combined Comparative basis, aircraft fuel expense increased $62 million or 20%.~~2022. The elements of the change are illustrated in the following table:


	Three Months Ended March 31,
	2023				2022
(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	$	633	$	3.35	$	504	$	2.91
(Gain)/loss on settled hedges	12		0.06		(50)		(0.29)
Consolidated economic fuel expense	$	645	$	3.41	$	454	$	2.62
Mark-to-market fuel hedge adjustments	20		0.11		(107)		(0.62)
GAAP fuel expense	$	665	$	3.52	$	347	$	2.00
Fuel gallons			189				173

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 26% in the first quarter of 2023 compared to the first quarter of 2022, due to higher per gallon costs and increased fuel consumption. Raw fuel expense per gallon ~~for the three months ended September 30, 2017~~ increased by ~~16%~~15% due to higher ~~West Coast~~all-in jet fuel prices. ~~West Coast jet~~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~~Although crude oil prices have fallen 19%, the ~~third quarter of 2017 was primarily driven~~per-gallon improvement is offset by a ~~76%~~47% increase in refining margins, ~~and an 8% increase~~as well as benefits received in ~~crude oil prices, when compared to the prior year.~~2022 for non-indexed fuel charges which did not repeat in 2023. Fuel gallons consumed increased ~~by 15 million gallons, or 8%~~9%, ~~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.

WeLosses recognized ~~total losses of $5 million and $4 million~~ for hedges that settled during the ~~third~~first quarter were $12 million in 2023, compared to gains of ~~2017 and 2016 as reported.~~$50 million in the same period in 2022. These amounts represent ~~the net~~ cash paid ~~including the~~for premium expense, ~~recognized for~~offset by any cash received from those ~~hedges.~~hedges at settlement.

In the second quarter, we expect our economic fuel cost per gallon to range between $2.95 to $3.15, as indicated by the forward curve as of the date of this filing.

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 and other special items. Significant operating expense variances from ~~2016~~2022 are more fully described below.


	Three Months Ended March 31,
(in millions)	2023		2022		% Change
Wages and benefits	$	723	$	606	19	%
Variable incentive pay	47		36		31	%
Aircraft maintenance	124		135		(8)	%
Aircraft rent	59		73		(19)	%
Landing fees and other rentals	152		138		10	%
Contracted services	95		78		22	%
Selling expenses	66		58		14	%
Depreciation and amortization	104		102		2	%
Food and beverage service	54		41		32	%
Third-party regional carrier expense	52		42		24	%
Other	177		152		16	%
Total non-fuel operating expenses, excluding special items	$	1,653	$	1,461	13	%

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~~$117 million, or ~~15%.~~19%, in the first quarter of 2023. 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 March 31,
(in millions)	2023		2022		% Change
Wages	$	558	$	467	19	%
Pension—Defined benefit plans	7		11		(36)	%
Defined contribution plans	51		38		34	%
Medical and other benefits	66		56		18	%
Payroll taxes	41		34		21	%
Total Wages and benefits	$	723	$	606	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 %

OnWages increased $91 million, or 19%, on a ~~Combined Comparative basis,~~6% growth in FTEs. When combined with FTE increases, higher wage rates stemming from labor agreements executed in 2022 were the primary driver for incremental year-over-year expense. Incremental expense for defined contribution plans was driven by the change in wages ~~increased 16% with~~as well as higher matching contributions for many labor groups. Increased expense for medical and other benefits was driven by an ~~18%~~increase in claims compared to the prior year and the increase in FTEs. Increased expense for payroll taxes was consistent with the change in wages and FTEs. Decreased defined benefit expense was driven by changes in actuarial assumptions.

We expect to see higher wages and benefits for the remainder of 2023 due to the increase in wage rates and expected growth in overall FTEs. Wages and benefits could also increase further in 2023 due to agreements we may reach during the year with represented labor groups.

Variable incentive pay

Variable incentive pay expense increased by $11 million, or 31%, in the first quarter of 2023. The increase was primarily driven by growth in the variable incentive pay wage base from increased FTEs on increased wage rates compared to 2022. The increase is ~~attributable~~also driven by a higher assumed payout percentage compared to the ~~growth~~prior year due to a greater degree of uncertainty 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 cancellationsforecasted financial performance during the ~~third~~first quarter ~~resulted in significant overtime for our customer service agents and reservations agents.~~of 2022.

Aircraft maintenance

~~Depreciation and Amortization~~

~~Depreciation and amortization~~Aircraft maintenance expense decreased by $6$11 million, or 6%8%, ~~during~~in the ~~third~~first quarter of ~~2017 compared to the same period in 2016. On a Combined Comparative basis, depreciation and amortization expense decreased by $17 million, or 15%. This~~2023. The decrease was primarily driven by ~~a change~~$35 million of lease return costs in the ~~estimated useful lives~~first quarter of ~~certain B737 operating aircraft~~2022 that did not recur in 2023 as all lease return costs associated with the Company's fleet transition have been recorded to Special items - fleet transition and ~~related parts from 20 years to 25 years, which~~other since the second quarter of 2022. This was ~~effective October 1, 2016,~~ partially offset by the impact of a new power-by-the-hour contract for the B737-900ER fleet.

We expect aircraft ~~additions~~maintenance to increase for the remainder of 2023 as compared to 2022 due primarily to the B737-900ER power-by-the-hour contract, which will total approximately $100 million for the year, as well as increased aircraft utilization.

Aircraft rent

Aircraft rent expense decreased by $14 million, or 19%, in the first quarter of 2023. The decrease was driven by the retirement of 30 A320 and 32 Q400 aircraft, partially offset by delivery of seven leased B737-9 aircraft since ~~September 30, 2016.~~the first quarter of 2022.

~~Other Operating Expenses~~We expect aircraft rent will remain below 2022 levels for the remainder of 2023, due to the net reduction in overall leased aircraft described above.

~~Other operating~~Landing fees and other rentals

Landing fees and other rentals increased by $14 million, or 10%, in the first quarter of 2023. The increase was driven by higher terminal rent costs resulting from both rate and volume increases. Additionally, 2023 expense was higher than 2022 due to non-recurring favorable settlements that were realized in 2022. Landing fees increased in the first quarter due to an overall increase in volume.

We expect landing fees and other rentals to increase for the remainder of 2023 as compared to 2022 due to increased capacity and higher rates at airports.

Contracted services

Contracted services increased by $17 million, or 22%, in the first quarter of 2023. The increase was driven by increased departures and passengers in line with increased demand, coupled with increased rates charged by vendors.

We expect contracted services to increase for the remainder of 2023 as compared to 2022 as we continue to increase capacity and departures throughout our network.

Selling expenses

Selling expenses increased by ~~$58~~$8 million, or ~~63%~~14%, ~~during~~in the ~~third~~first quarter of ~~2017~~2023. The increase was driven by incremental credit card commissions and distribution costs incurred from increased bookings and fares as demand has grown. Commissions and fees associated with alliances and business travel also contributed to the increase.

We expect selling expenses to increase for the remainder of 2023 as compared to ~~the same period~~2022, due primarily to higher sales and an increase in ~~2016. On a Combined Comparative basis, other operating expenses~~marketing costs as we build our brand.

Food and beverage service

Food and beverage service increased by ~~$35~~$13 million, or ~~30%.~~32%, in the first quarter of 2023. The increase was driven by a combination of 13% growth in revenue passengers, additional onboard offerings, and higher costs for food, food service supplies, and transportation.

We expect the factors described above will continue to have a similar impact on food and beverage service for the remainder of 2023 as compared to 2022.

Third-party regional carrier expense

Third-party regional carrier expense, which represents expenses associated with SkyWest under our CPA, increased by $10 million, or 24%, in the first quarter of 2023. Although total regional capacity and departures have decreased year-over-year, the

increase in third-party regional carrier expense is ~~primarily~~driven by incremental departures and block hours for flights operated by SkyWest, which have risen due to six additional E175 aircraft operating under the CPA since March 31, 2022. Higher wage rates for flight crews have also contributed to the increase.

We expect third-party regional carrier expense will continue to be higher for the remainder of 2023 as compared to 2022 due to incremental departures and block hours, as well as higher wage rates for flight crews.

Other expense

Other expense increased $25 million, or 16%, in the first quarter of 2023. The increase was driven by higher professional services costs, ~~incurred~~as well as increases for crew hotel stays and crew per diem. Increases in crew-related costs ~~passenger disruption costs, training costs~~are due to contract improvements for ~~front-line employees, scrapped parts inventory,~~Alaska pilots, as well as the rise in departures.

Special items - fleet transition and ~~certain information technology costs. These increases were largely driven by the growth in our business~~other

We recorded expenses associated with fleet transition 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~~$13 million in the ~~same period~~first quarter of 2023. We expect to record additional special charges associated with the fleet transition in ~~2016. On a Combined Comparative basis, nonoperating~~2023, primarily related to accelerated ownership expenses of the A321neo aircraft. At this time, these costs are estimated to range between $300 million and $350 million for the remainder of 2023. The Company continues to evaluate options for the A321neo aircraft. Refer to Note 2 to the consolidated financial statements for additional details.

Special items - labor and related

We recorded an expense ~~increased by $9~~of $51 million ~~primarily~~in the first quarter of 2023 due to ~~interest expense incurred in the current year on the debt issued in 2016~~a Letter of Agreement with Alaska pilots, represented by ALPA. The charge is a one-time adjustment of accrued benefits related to ~~finance the acquisition~~expected future cash payments of ~~Virgin America.~~pilots' unused sick leave upon retirement.

~~Additional Segment Information~~ADDITIONAL SEGMENT INFORMATION

Refer to Note ~~9 of~~10 to 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~~loss of ~~$422~~$67 million in the ~~third~~first quarter of ~~2017~~2023, compared to ~~$383~~an adjusted pretax loss of $174 million in the ~~third~~first quarter of ~~2016. On a Combined Comparative basis, Mainline adjusted pretax profit decreased by $48 million.~~2022. 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~~$107 million ~~decrease in Combined Comparative pretax profit~~improvement was primarily driven by a ~~$77~~$447 million increase in ~~non-fuel operating expenses and~~Passenger revenue, offset by a ~~$59~~$180 million increase in economic fuel cost ~~partially offset by~~and a ~~$95~~$196 million increase in non-fuel operating ~~revenues. The~~costs.

As compared to the prior year, higher Mainline revenue is primarily attributable to a 23% increase in ~~non-fuel expense was primarily driven by higher wages to support our growth~~traffic and ~~higher other operating expenses as described above. The~~a 11% increase in economic 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.

~~Regional~~

Our Regional operations contributed a pretax profit of $20 million in the third quarter of 2017 compared to $35 million in the third quarter of 2016. The decrease in pretax profit 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 million increase in operating revenues as described in Passenger Revenue—Regional.

~~Horizon~~

~~Horizon incurred a pretax profit of $5 million in the third quarter of 2017 compared to $9 million in the third quarter of 2016. The change in pretax profit was primarily~~yield, driven by a ~~$4 million increase in operating revenue, partially offset by higher non-fuel~~strong demand environment. 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.~~

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

Our consolidated net income for the nine months ended September 30, 2017 was $661 million, or $5.31 per diluted share, compared to net income of $700 million, or $5.63 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.

Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, our adjusted net income for the nine months ended September 30, 2017 was $721 million, or $5.79 per diluted share, compared to an adjusted net income of $717 million, or $5.77 per diluted share, in the nine months ended September 30, 2016. The following tables reconcile our adjusted net income and diluted EPS to amounts as reported in accordance with GAAP:

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

~~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~~ ~~increased$1.6 billion, or~~ ~~35%, during the first~~ ~~nine~~ ~~months of~~ ~~2017~~ ~~compared to the same period in~~ ~~2016~~. On a Combined Comparative basis, total operating revenues increased $330 million, or 6%. 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, 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~~

~~Mainline passenger revenue for the first~~ ~~nine~~ ~~months of~~ ~~2017increased45%~~ ~~on a~~ ~~45%increase~~ ~~in capacity, driven primarily by the acquisition of Virgin America, and flat PRASM compared to the same period in~~ ~~2016~~. On a Combined Comparative basis, mainline passenger revenue for the nine months ended September 30, 2017 increased 6%, primarily due to a 6% increase in capacity on flat PRASM. The increase in capacity was driven by our network expansion since September 30, 2016.

~~Passenger Revenue—Regional~~

~~Regional passenger revenue~~ ~~increased~~ by ~~$43 million, or~~ 6%~~, 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%. 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, 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~~

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

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, the raw fuel price per gallon increased 21% 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 refining margins associated with the conversion of crude oil to jet fuel. The increase in raw fuel price per gallon during the first nine months of 2017 was driven by a 19% increase in crude oil prices and a 38% increase in refining margins.

We recognized losses of $14 million and $12 million for hedges that settled in the first nine months of 2017 and 2016 as reported. These amounts represent the cash paid for premium expense, offset by cash received from those hedges.

We currently expect our economic fuel price per gallon to be higher in the fourth quarter of 2017 compared to the fourth quarter of 2016 due to our current estimate of higher crude prices and higher refining margins.

~~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~~

~~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 million or 13%, compared to 2016. The primary components of wages and benefits are shown in the following table:~~

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 increased $135 million, or 15%, 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 million of ratification bonus expense in connection~~and higher variable costs, largely consistent with the ~~agreement reached with Horizon's pilots during the second quarter.~~

~~For the full year, we expect wages~~overall growth in capacity 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~~

Variable incentive pay expense increased during the first nine months of 2017 by $3 million, or 3% compared to 2016. On a Combined Comparative basis, variable incentive pay decreased $22 million, or 18% due to expectations of lower performance-based pay as compared to the prior year based on how we are tracking in relation to the current year's goals.

~~For the full year, we expect variable incentive pay expense to be lower than in 2016 on a combined comparative basis, due to lower achievement against performance-based pay metrics than prior year.~~

~~Depreciation and Amortization~~

Depreciation and amortization expense decreased $6 million, or 2% compared to 2016. On a Combined Comparative basis, depreciation and amortization decreased $35 million, or 11%. This decrease was primarily driven by a change in 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.

~~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~~

Food and beverage service expense increased $52 million, or 56%. On a Combined Comparative basis, 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, in line with the increase in passengers in the current year, and enhancements to our onboard menu offerings.

~~Third-Party Regional Carrier Expense~~

Third-party regional carrier expense, which represents payments made to SkyWest and Pen Air under our CPAs, increased $12 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%, 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, compared to $36 million as reported and $44 million on a Combined Comparative basis in the first nine months of 2016. Costs incurred in the first nine months of 2017 consisted primarily of severance and retention and IT integration costs.

~~We expect to incur merger-related costs for the remainder of 2017, and continuing through 2019.~~

~~Nonoperating Income (Expense)~~

During the first nine months of 2017, we had nonoperating expense of $40 million, compared to income of $6 million in the same period in 2016. On a Combined Comparative basis, nonoperating expense increased by $32 million, primarily due to interest expense incurred in the current year on the debt issued in 2016 to finance the acquisition of Virgin America.

~~Additional Segment Information~~

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

~~Mainline~~

~~Mainline adjusted pretax profit was $1.13 billion in the first~~ ~~nine~~ ~~months of~~ ~~2017, compared to $1.05 billion in the same period in~~ ~~2016~~. On a Combined Comparative basis, Mainline adjusted pretax profit decreased by $111 million. 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 million decrease in Combined Comparative pretax profit was driven by a $181 million increase in Mainline fuel expense, a $190 million increase in Mainline non-fuel operating expenses, and a $27 million increase in nonoperating expense. These increases were offset by a $287 million increase in Mainline passenger revenue.departures. Higher ~~raw~~all-in fuel prices ~~and an increase in~~relative to 2022, combined with more 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~~$36 million in the first ~~nine months~~quarter of ~~2017,~~2023, compared to ~~$72~~an adjusted pretax loss of $55 million in the first ~~nine months~~quarter of ~~2016.~~2022. The $19 million improvement was driven by a $25 million increase in Operating revenue and a $6 million decrease in ~~pretax profit was attributable to higher~~ non-fuel operating ~~expense, due in large part to increased capacity and higher raw fuel costs,~~expenses, partially offset by a ~~$43~~$12 million increase in ~~operating revenues as described~~fuel costs.

Regional passenger revenue increased compared to the first quarter of 2022, primarily driven by an improved load factor and a 33% improvement in ~~Passenger Revenue—Regional.~~yield, partially offset by a decrease in capacity. Higher fuel prices drove the increase in Regional fuel expense.

Horizon

Horizon ~~incurred a~~reported an adjusted pretax loss ~~of $11 million in the first nine months of 2017, compared to pretax profit~~ of $14 million in the ~~same period~~first quarter of 2023, compared to an adjusted pretax loss of $10 million in ~~2016.~~the first quarter of 2022. The ~~change was~~loss is driven by ~~higher non-fuel expenses and~~ lower CPA ~~Revenues (100% of which are from Alaska~~revenue on decreased departures and ~~eliminated in consolidation). Non-fuel expenses increased primarily due to~~block hours, combined with higher wage and ~~training expense as a result of the increase in FTE’s, increased~~benefit costs ~~associated with flight cancellations primarily~~ due to ~~a shortage~~increased wage rates resulting from the annualization of ~~pilots necessary to fly the schedule, and a $9 million ratification bonus expense in connection~~new collective bargaining agreements with ~~the agreement with Horizon's pilots.~~Horizon employees.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are:

~~Our existing~~•Existing cash and marketable securities ~~balance~~ of ~~$1.7 billion, and our expected cash~~$2.4 billion;

•Cash flows from ~~operations;~~

operations of $222 million;

~~Our 64~~•72 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~~three months ended ~~September 30, 2017,~~March 31, 2023, we took free and clear delivery of ~~ten B737-900ER aircraft and ten E175~~three owned Boeing 737-9 aircraft. We made debt payments totaling ~~$265~~$96 million, ending the quarter with a debt-to-capitalization ratio of 48%, within our target range of 40% to 50%. We also resumed share repurchases, spending $18 million to repurchase shares in the first quarter, pursuant to the $1 billion repurchase plan authorized by the Board of Directors in August 2015.

We believe that our current cash and ~~paid dividends totaling $111 million.~~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)	March 31, 2023			December 31, 2022			Change
Cash and marketable securities	$	2,429		$	2,417		— %
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	28		%	29		%	(1) pt
Long-term debt, net of current portion	1,795			1,883			(5)%
Shareholders’ equity	$	3,689		$	3,816		(3)%


Debt-to-capitalization, adjusted for operating leases
(in millions)	March 31, 2023			December 31, 2022			Change
Long-term debt, net of current portion	$	1,795		$	1,883		(5)%
Capitalized operating leases	1,668			1,621			3%

Adjusted debt	$	3,463		$	3,504		(1)%
Shareholders' equity	3,689			3,816			(3)%
Total invested capital	$	7,152		$	7,320		(2)%

Debt-to-capitalization, including operating leases	48		%	48		%	—

(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)	March 31, 2023		December 31, 2022
Current portion of long-term debt	$	268	$	276
Current portion of operating lease liabilities	213		228
Long-term debt	1,795		1,883
Long-term operating lease liabilities, net of current portion	1,455		1,393
Total adjusted debt	3,731		3,780
Less: Cash and marketable securities	(2,429)		(2,417)
Adjusted net debt	$	1,302	$	1,363

(in millions)	Twelve Months Ended March 31, 2023		Twelve Months Ended December 31, 2022
GAAP Operating Income(a)	$	86	$	70
Adjusted for:
Special items	569		580
Mark-to-market fuel hedge adjustments	203		76
Depreciation and amortization	417		415
Aircraft rent	277		291
EBITDAR	$	1,552	$	1,432
Adjusted net debt to EBITDAR	0.8x		1.0x


~~(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~~three months of ~~2017,~~2023, net cash provided by operating activities was ~~$1.4 billion,~~$222 million, compared to ~~$1.2 billion~~$287 million during the same period in ~~2016.~~ 2022. Cash provided by ticket sales and from our co-branded credit card agreement are the primary sources of our operating cash flow. Our primary use of operating cash flow is for operating expenses, including payments for employee wages and benefits, payments to suppliers for goods and services, and payments to lessors and airport authorities for rents and landing fees. Operating cash flow also includes payments to, or refunds from, federal, state and local taxing authorities.

The ~~$151~~$65 million ~~increase~~net decrease in our operating cash flows is ~~primarily attributable~~due to ~~increased~~a combination of factors. Increased cash provided by higher ticket sales and our co-branded credit card agreement were offset by increased cash used for ~~future travel compared to~~operating expenses. Payments made in the first quarter for our 2022 performance-based pay program were approximately $110 million higher than payments in the prior year ~~resulting from the overall growth in~~for our ~~business and the addition of Virgin America. This was partially offset by a decrease in our net income, which was impacted by higher fuel costs and $88 million of merger-related costs.~~2021 program.

~~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~~Provided by Investing Activities

Cash ~~used in~~provided by investing activities was ~~$1.1 billion~~$60 million during the first ~~nine~~three months of ~~2017~~,2023, compared to ~~$641~~$39 million during the same period of ~~2016. Our~~2022. Cash used in capital expenditures ~~were~~ ~~$841~~for aircraft purchase deposits and other property and equipment was $124 million in the first ~~nine~~three months of ~~2017, an increase of $332 million~~2023, compared to $288 million in the ~~nine~~first three months ~~ended September 30, 2016. This is primarily driven by more aircraft purchases and higher spend on other equipment~~of 2022. Additionally, there were $187 million of net sales of marketable securities during the first three months of 2023, compared to $328 million of net sales during the first three months of 2022.

Cash Used in Financing Activities

Cash used in financing activities was $114 million during the first three months of 2023, compared to $168 million during 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 2022. During the first ~~nine~~three months of ~~2017.~~2023, we utilized cash on hand to repay $96 million of outstanding long-term debt, compared to payments of $170 million during the same period in 2022. We also repurchased $18 million of our common stock during the first three months of 2023.

MATERIAL CASH COMMITMENTS

Material cash requirements include the following contractual and other obligations:

Aircraft Commitments

As of March 31, 2023, Alaska has firm orders to purchase 102 B737 aircraft with deliveries between 2023 and 2027 and a firm commitment to lease one B737-9 aircraft with delivery in 2023. Alaska also has rights for 105 additional B737-10 aircraft through 2030.

Alaska has received information from Boeing that certain B737 deliveries in 2023 are expected to be delayed into 2024. The ~~table~~anticipated fleet count outlined below reflects ~~our full-year expectation~~the expected impact of these delays. Alaska will continue to work with Boeing on delivery timelines that support Alaska's plans for ~~capital expenditures~~growth.

Horizon has commitments to purchase 17 E175 aircraft with deliveries between 2023 and ~~additional expenditures if~~2026. Horizon has options ~~are exercised.~~ to acquire 13 E175 aircraft between 2025 and 2026.

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 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, we have firm orders 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 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 following table summarizes ~~expected~~our anticipated fleet ~~activity~~count by year, as of ~~September 30, 2017:~~March 31, 2023:


	Actual Fleet	Anticipated Fleet Activity(a)
Aircraft	March 31, 2023	2023 Additions	2023 Removals	Dec 31, 2023	2024 Changes	Dec 31, 2024	2025 Changes	Dec 31, 2025
B737-700 Freighters	3	—	—	3	—	3	—	3
B737-800 Freighters	—	1	—	1	1	2	—	2
B737-700	11	—	—	11	—	11	—	11
B737-800	61	—	(2)	59	—	59	—	59
B737-900	12	—	—	12	—	12	—	12
B737-900ER	79	—	—	79	—	79	—	79
B737-8	—	3	—	3	2	5	4	9
B737-9	43	28	—	71	13	84	5	89
B737-10	—	—	—	—	6	6	21	27

A321neo	10	—	(10)	—	—	—	—	—
Total Mainline Fleet	219	32	(12)	239	22	261	30	291

E175 operated by Horizon	33	8	—	41	3	44	3	47
E175 operated by third party	42	—	—	42	—	42	1	43
Total Regional Fleet	75	8	—	83	3	86	4	90
Total	294	40	(12)	322	25	347	34	381

(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.

We intend to finance future aircraft deliveries and option exercises using cash flow from operations or long-term debt.

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.~~

~~For future firm orders, and if we exercise our options for additional deliveries, we may finance the aircraft through internally generated cash, long-term debt or lease arrangements.~~

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 and, 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
















Second Quarter of 2023	50	%	$97	$7
Third Quarter of 2023	50	%	$100	$7
Fourth Quarter of 2023	40	%	$97	$7
Full Year 2023	47	%	$98	$7
First Quarter of 2024	30	%	$88	$7
Second Quarter of 2024	20	%	$88	$7
Third Quarter of 2024	10	%	$86	$6

Full Year 2024	14	%	$87	$7

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 our ~~principal payments under current and long-term debt obligations, operating lease commitments, aircraft purchase commitments and other~~ obligations as of ~~September 30, 2017~~March 31, 2023. For agreements with variable terms, amounts included reflect our minimum obligations. Discussion of these obligations follow the table below.


(in millions)	Remainder of 2023		2024		2025		2026		2027		Beyond 2027		Total
Debt obligations	$	185	$	243	$	296	$	176	$	535	$	643	$	2,078
Aircraft lease commitments(a)	215		241		236		234		229		827		1,982
Facility lease commitments	14		13		12		12		10		124		185
Aircraft-related commitments(b)	1,742		1,393		1,440		689		335		598		6,197


Interest obligations(c)	68		77		79		63		61		89		437
CPA and other obligations(d)	154		224		227		219		220		739		1,783
Total	$	2,378	$	2,191	$	2,290	$	1,393	$	1,390	$	3,020	$	12,662

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

(b)Includes contractual commitments for aircraft, engines, and aircraft maintenance. Option deliveries are excluded from minimum commitments until exercise.

(c)For variable-rate debt, future obligations are shown above using interest rates forecast as of March 31, 2023.

(d)Primarily comprised of non-lease costs associated with capacity purchase agreements.

Debt Obligations and Interest Obligations

The Company primarily issues debt to fund purchases of aircraft or other capital expenditures. As of March 31, 2023, we repaid $96 million in debt. At March 31, 2023, our debt portfolio carries a weighted average interest rate of 3.7%. Interest is paid with regular debt service. Debt service obligations remaining in 2023 are expected to be approximately $253 million, inclusive of interest and principal. Refer to Note 5 to the consolidated financial statement for further discussion of our debt and interest balances.

CPA and Other Obligations

We have obligations primarily associated with our capacity purchase agreements between Alaska and SkyWest, as well as other various sponsorship agreements and investment commitments.

Leased Aircraft Return Costs

For many of our leased aircraft, we are required under the contractual terms to return the aircraft in a specified state. As a result of these contractual terms, we will incur significant costs to return these aircraft at the termination of the lease. Costs of returning leased aircraft are accrued when the costs are probable and reasonably estimable, usually over the twelve months prior

(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
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. Additional charges to be recorded in 2023 will reflect adjustments to estimated costs to return the A320 fleet. A total of $225 million is accrued at March 31, 2023, including costs recorded in prior year periods.We anticipate recording material cash outflows to return aircraft in 2023 in conjunction with expected lease terminations and the accelerated exit of Airbus aircraft from Alaska's fleet.


~~(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.~~

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.

Sustainability Commitments

~~Deferred~~ As part of our efforts to reach net-zero carbon emissions by 2040, we have outlined a five-part path that we expect to include operational efficiency, fleet renewal, sustainable aviation fuels, enabling new technologies including zero emission aircraft in the future, and using credible offsetting and removal technologies to close the gaps to the target in future years. We anticipate these efforts will require cash outlays, not all of which are reflected in our contractual commitments. Finding and establishing relationships with suppliers to meet these commitments is in process. Currently, Alaska has agreements to purchase approximately 200 million gallons of neat SAF to be delivered between 2025 and 2030. These agreements are dependent on suppliers' ability to obtain all required governmental and regulatory approvals, achieve commercial operation, and produce sufficient quantities of SAF. Financial commitments that have been contractually established and have met defined minimum obligations, including those related to Alaska Star Ventures, are included within the CPA and other obligations row in the above table, as appropriate.

Income Taxes

For federal income tax purposes, the majority of our ~~assets~~property and equipment 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~~property and equipment difference will reverse into taxable income, potentially resulting in an increase in income taxes ~~paid.~~payable.

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 and cash taxes payable in the short term are impacted by many items, including the amount of book income generated (which can be volatile depending on revenue and fuel ~~prices)~~prices, among other factors out of our control), ~~usage of net operating losses,~~ whether ~~"bonus depreciation"~~“bonus depreciation” provisions are available, ~~pending tax reform efforts at the federal level,~~ as well as other legislative changes ~~that are~~ beyond our control. We believe ~~that~~ we have the liquidity to make our future tax payments.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to our critical accounting estimates ~~for~~during the three months ended ~~September 30, 2017.~~March 31, 2023. 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.~~2022.

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, Airbus A320, and Airbus ~~320 family~~A321neo 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~~.2022.



ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~September 30, 2017~~,March 31, 2023, 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~~.March 31, 2023.

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~~,March 31, 2023, 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, pursuant to that agreement's venue provision, 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 and irrespective of Alaska's actual use (or non-use) of the mark. The possible range of contractual liability is between $10 million and $160 million. Alaska stopped making royalty payments in 2019 after ending all use of the Virgin brand. On February 16, 2023, the commercial court issued a ruling adopting Virgin Group’s interpretation of the license agreement. The Company believes the claims in ~~this~~the case are without factual and legal merit, a position supported by Virgin America’s representations during pre-merger due diligence, and ~~intends~~has made an application to ~~defend this lawsuit.~~appeal in the English courts. Alaska also commenced a separate claim for breach of the agreement against the Virgin Group that may affect the Company’s total liability in the matter.



ITEM 1A. RISK FACTORS

~~There have been no material changes to the~~See Part I, Item 1A. "Risk Factors," in our 2022 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 shares of our common stock during the ~~third~~first quarter of ~~2017.~~

2023.


	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)
January 1, 2023 - January 31, 2023	—	$	—
February 1, 2023 - February 28, 2023	104,814	48.60
March 1, 2023 - March 31, 2023	308,740	42.43
Total	413,554	$	43.99	$	438

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.

As of March 31, 2023, 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”).

Compensation Arrangements with Named Executive Officers

On May 2, 2023, the Compensation and Leadership Development Committee of the Board of Directors (the "Committee") noted the expiration of Coronavirus Aid, Relief and Economic Security Act of 2020 restrictions, which had capped certain executive’s compensation at 2019 levels since April 2020. These restrictions prevented the Committee from delivering commensurate compensation to key executives who were promoted to larger, more responsible roles during or just months before the pandemic broke out, including its chief executive officer (promoted in March 2021), chief financial officer (promoted in March 2020), chief operating officer (promoted in April 2021), chief people officer (promoted in June 2019) and chief legal officer (promoted in January 2020). The Committee recognized that impacted executives forfeited substantial equity value to remain under their 2019 compensation caps from April 2020 to April 2023, after leading the Company through a pandemic that had disproportionate effect on the airline industry and after achieving industry-leading profitability in and operational results in 2022. The Company retained these executives even though they could have taken jobs at other airlines or in other industries without being subject to compensation caps.

After consulting with its independent advisors and the full Board, the Committee approved the performance-based equity awards described below (the “Awards”) to named executive officers Ben Minicucci, the Company’s President and CEO; Shane Tackett, the Company’s Executive Vice President and Chief Financial Officer; Andrew Harrison, the Executive Vice President and Chief Commercial Officer of Alaska Airlines; Constance von Muehlen, the Executive Vice President and Chief Operating Officer of Alaska Airlines; and Andrea Schneider, the Senior Vice President People of Alaska Airlines, to address equity value forfeited during the periods in which they were performing more responsible jobs while being compensated at 2019 levels associated with their prior roles.

Performance-Based, Time-Vesting Performance Stock Units


	Number (at target)	Grant Date Value	Vesting Schedule
Mr. Minicucci	55,380	$3,746,457	12/31/23 – 25,160 12/31/24 – 30,220
Mr. Tackett	29,370	$1,986,881	12/31/23 – 14,490 12/31/24 – 14,880
Mr. Harrison	15,800	$1,068,870	12/31/23 – 14,490 12/31/24 – 1,310
Ms. Von Muehlen	20,942	$1,416,726	5/2/23 – 1,112 12/31/23 – 8,210 12/31/24 – 11,620
Ms. Schneider	12,300	$832,095	12/31/23 – 5,790 12/31/24 – 6,510

Performance-Based, Time-Vesting Restricted Stock Units


	Number	Grant Date Value	Vesting Schedule
Mr. Minicucci	19,215	$833,355	2/25/24 – 12,580 2/7/25 – 6,635
Mr. Tackett	10,910	$473,167	2/9/24 – 7,240 2/7/25 – 3,670
Mr. Harrison	7,240	$313,999	2/9/24 – 7,240
Ms. Von Muehlen	11,110	$481,841	5/2/23 – 1,190 4/3/24 – 4,110 2/7/25 – 5,810
Ms. Schneider	6,000	$260,220	2/9/24 – 2,900 2/7/25 – 3,100

Stock Options

Ms. von Muehlen’s Award included incentive stock options (ISOs) and non-qualified stock options (NQOs).

Type

Number

Grant Date Black-Scholes Value

Vesting Schedule

ISOs

4,834

$76,712

5/2/23 – 58
2/7/24 – 1
2/11/24 – 1,293
4/3/24 – 237
4/3/25 – 1,439
2/7/26 – 1,806

NQOs

20,097

$327,556

5/2/23 – 8,222
2/7/24 – 3,442
4/3/24 – 2,278
2/7/25 – 3,442
4/3/25 – 1,076
2/7/26 – 1,637



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~~May 5, 2023

EXHIBIT INDEX

Exhibit
Number

Exhibit
Description

Form

Date of First Filing

Exhibit Number

3.2

Amended and Restated Certificate of Incorporation of Registrant

10-Q

August 3, 2017

3.1

10.1#†

Amendment No. 20 to Purchase Agreement COM0041-16 between Embraer S.A. and Horizon Air Industries, Inc.

10-Q

10.2#†

Amendment No. 21 to Purchase Agreement COM0041-16 between Embraer S.A. and Horizon Air Industries, Inc.

10-Q

31.1†

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

10-Q

31.2†

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

10-Q

32.1†

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

10-Q

32.2†

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

10-Q

101.INS†

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

101.SCH†

XBRL Taxonomy Extension Schema Document

101.CAL†

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†

XBRL Taxonomy Extension Label Linkbase Document

101.PRE†

XBRL Taxonomy Extension Presentation Linkbase Document

†

Filed herewith

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



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	21
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	4337
ITEM 4.	CONTROLS AND PROCEDURES	4338
PART II.	OTHER INFORMATION	4439
ITEM 1.	LEGAL PROCEEDINGS	4439
ITEM 1A.	RISK FACTORS	4439
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4439
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	4441
ITEM 4.	MINE SAFETY DISCLOSURES	4441
ITEM 5.	OTHER INFORMATION	4441
ITEM 6.	EXHIBITS	4541
	SIGNATURES	4542



(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



	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



	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



	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



	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%



	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