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~~,2022. Some of these risks include competition, labor costs, relations and ~~Item 1A. "Risk Factors" included herein.~~availability, general economic conditions including those associated with pandemic recovery, increases in operating costs including fuel, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. Please consider our forward-looking statements in light of those risks as you read this report.

PART I



ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions)	September 30, 2023		December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents	$	647	$	338
Marketable securities	1,804		2,079
Total cash and marketable securities	2,451		2,417
Receivables - net	341		296
Inventories and supplies - net	122		104
Prepaid expenses	187		163
Assets held for sale	385		3
Other current assets	158		57
Total Current Assets	3,644		3,040

Property and Equipment
Aircraft and other flight equipment	10,015		9,053
Other property and equipment	1,756		1,661
Deposits for future flight equipment	538		670
	12,309		11,384
Less accumulated depreciation and amortization	4,283		4,127
Total Property and Equipment - Net	8,026		7,257

Other Assets
Operating lease assets	1,171		1,471
Goodwill and intangible assets	2,034		2,038
Other noncurrent assets	290		380
Total Other Assets	3,495		3,889

Total Assets	$	15,165	$	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)	September 30, 2023		December 31, 2022
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	229	$	221
Accrued wages, vacation and payroll taxes	561		619
Air traffic liability	1,359		1,180
Other accrued liabilities	806		846
Deferred revenue	1,233		1,123
Current portion of operating lease liabilities	150		228
Current portion of long-term debt and finance leases	736		276
Total Current Liabilities	5,074		4,493

Long-Term Debt, Net of Current Portion	2,128		1,883

Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion	1,113		1,393
Deferred income taxes	662		574
Deferred revenue	1,366		1,374
Obligation for pension and post-retirement medical benefits	368		348
Other liabilities	361		305
Total Noncurrent Liabilities	3,870		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 - 138,004,646 shares; 2022 - 136,883,042 shares, Outstanding: 2023 - 127,120,173 shares; 2022 - 127,533,916 shares	1		1
Capital in excess of par value	659		577
Treasury stock (common), at cost: 2023 - 10,884,473 shares; 2022 - 9,349,944 shares	(744)		(674)
Accumulated other comprehensive loss	(360)		(388)
Retained earnings	4,537		4,300
	4,093		3,816
Total Liabilities and Shareholders' Equity	$	15,165	$	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 September 30,				Nine Months Ended September 30,
(in millions, except per share amounts)	2023		2022		2023		2022
Operating Revenue
Passenger revenue	$	2,618	$	2,615	$	7,200	$	6,544
Mileage Plan other revenue	159		146		483		433
Cargo and other revenue	62		67		190		190
Total Operating Revenue	2,839		2,828		7,873		7,167

Operating Expenses
Wages and benefits	782		686		2,259		1,931
Variable incentive pay	45		48		149		140
Aircraft fuel, including hedging gains and losses	694		877		1,932		2,000
Aircraft maintenance	118		92		367		331
Aircraft rent	48		76		161		222
Landing fees and other rentals	183		161		502		435
Contracted services	100		83		290		243
Selling expenses	84		82		231		218
Depreciation and amortization	113		104		330		310
Food and beverage service	62		52		176		143
Third-party regional carrier expense	58		53		164		145
Other	185		207		544		536
Special items - fleet transition and other	156		155		355		376
Special items - labor and related	—		90		51		90
Total Operating Expenses	2,628		2,766		7,511		7,120
Operating Income	211		62		362		47

Non-operating Income (Expense)
Interest income	23		17		62		35
Interest expense	(34)		(31)		(90)		(84)
Interest capitalized	7		3		21		8
Special items - net non-operating	(8)		—		(14)		—
Other - net	(6)		14		(22)		38
Total Non-operating Income (Expense)	(18)		3		(43)		(3)
Income Before Income Tax	193		65		319		44
Income tax expense	54		25		82		8
Net Income	$	139	$	40	$	237	$	36

Basic Earnings Per Share:	$	1.09	$	0.32	$	1.86	$	0.28
Diluted Earnings Per Share:	$	1.08	$	0.31	$	1.84	$	0.28
Shares used for computation:
Basic	127.187		126.783		127.375		126.440
Diluted	129.188		128.370		129.085		128.087

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

Operating Expenses

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

Nonoperating Income (Expense)

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

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

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

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

~~ALASKA AIR GROUP, INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Net Income	$	139	$	40	$	237	$	36
Other comprehensive income (loss), net of tax
Marketable securities	2		(26)		18		(86)
Employee benefit plans	3		1		11		2
Interest rate derivative instruments	—		5		(1)		18
Total other comprehensive income (loss), net of tax	$	5	$	(20)	$	28	$	(66)

Total Comprehensive Income (Loss), Net of Tax	$	144	$	20	$	265	$	(30)

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 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
Net income	—	—		—		—		—		240		240
Other comprehensive income	—	—		—		—		—		—		—
Common stock repurchase	(0.872)	—		—		(39)		—		—		(39)
Stock-based compensation	0.017	—		26		—		—		—		26


Stock issued for employee stock purchase plan	0.924	—		34		—		—		—		34
Stock issued under stock plans	0.036	—		1		—		—		—		1
Balance at June 30, 2023	127.348	$	1	$	648	$	(731)	$	(365)	$	4,398	$	3,951
Net income	—	—		—		—		—		139		139
Other comprehensive income	—	—		—		—		5		—		5
Common stock repurchase	(0.249)	—		—		(13)		—		—		(13)
Stock-based compensation	—	—		11		—		—		—		11


Stock issued under stock plans	0.021	—		—		—		—		—		—
Balance at September 30, 2023	127.120	$	1	$	659	$	(744)	$	(360)	$	4,537	$	4,093


(in millions)	Common Stock Outstanding	Common Stock		Capital in Excess of Par Value		Treasury Stock		Accumulated Other Comprehensive 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
Net income	—	—		—		—		—		139		139
Other comprehensive loss	—	—		—		—		(16)		—		(16)

Stock-based compensation	0.017	—		9		—		—		—		9


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

Stock-based compensation	—	—		8		—		—		—		8
Stock issued under stock plans	0.074	—		(1)		—		—		—		(1)
Balance at September 30, 2022	126.834	$	1	$	549	$	(674)	$	(328)	$	4,278	$	3,826

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended September 30,
(in millions)		2023		2022
Cash Flows from Operating Activities:
Net Income		$	237	$	36
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		330		310
Stock-based compensation and other		73		33
Special items - fleet transition and other		344		376
Special items - labor and related		51		—

Changes in certain assets and liabilities:
Changes in deferred income taxes		90		—
Increase in accounts receivable		(45)		(59)
Increase in air traffic liability		179		304
Increase in deferred revenue		102		123

Federal income tax refund		—		260
Other - net		(258)		26
Net cash provided by operating activities		1,103		1,409
Cash Flows from Investing Activities:
Property and equipment additions
Aircraft and aircraft purchase deposits		(669)		(688)
Other flight equipment		(153)		(156)
Other property and equipment		(169)		(103)
Total property and equipment additions		(991)		(947)
Purchases of marketable securities		(519)		(1,670)
Sales and maturities of marketable securities		806		1,731

Other investing activities		(106)		(2)
Net cash used in investing activities		(810)		(888)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt, net of issuance costs		313		—
Long-term debt payments		(242)		(333)
Common stock repurchases		(70)		—

Other financing activities		11		37
Net cash provided by (used in) financing activities		12		(296)
Net increase in cash and cash equivalents		305		225
Cash, cash equivalents, and restricted cash at beginning of period		369		494
Cash, cash equivalents, and restricted cash at end of the period		$	674	$	719

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

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

Cash flows from investing activities:

Property and equipment additions:

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

Cash flows from financing activities:

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

Supplemental disclosure:

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


	Nine Months Ended September 30,
(in millions)		2023		2022
Supplemental disclosure:
Cash paid during the period for:
Interest, net of amount capitalized		$	85	$	72

Income taxes, net of refunds received		14		—

Non-cash transactions:
Right-of-use assets acquired through operating leases		120		419
Operating leases converted to finance leases		505		—
Property and equipment acquired through the issuance of debt		179		—

Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents		647		688
Restricted cash included in Other noncurrent assets		27		31
Total cash, cash equivalents, and restricted cash at end of the period		$	674	$	719

~~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~~2023 and the results of operations for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~.2022. Such adjustments were of a normal recurring nature. Certain rows, columns, figures, or percentages may not recalculate due to rounding.

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~~revenue 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~~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 from Contracts with Customers" (Topic 606), which requires an entity to recognize the amount~~first quarter of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This comprehensive new standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations" to clarify the guidance on determining whether2022, the Company ~~is considered~~announced plans to accelerate the ~~principal or~~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. The removal of all A320 and Q400 aircraft from operating service was completed in January 2023. The removal of all A321neo aircraft from operating service was completed in September 2023. At September 30, 2023, Alaska had reached agreements with multiple lessors to exit its ten A321neo operating leases and purchase the ~~agent~~aircraft. Three aircraft purchases closed by September 30, 2023. Subsequent to quarter end, Alaska finalized an agreement to sell the ten aircraft to American Airlines. The remaining seven purchases and all sales to American Airlines are expected to occur in the fourth quarter of 2023 and first quarter of 2024. As 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 partsresult of the new ~~revenue standard using~~agreements, the ~~same transition method. The new standard is effective for the Company on January 1, 2018.~~

At this time, the Company believes the most significant impact to the financial statements will be to Mileage Plan™ revenues and liabilities. The Company currently uses the incremental cost approach for miles earned through travel. As this approach will be eliminatedoperating leases associated with the standard, 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 certificatesseven aircraft 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~~not purchased by September 30, 2023 were considered modified, and upon evaluation were reclassified as finance leases.

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

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

The Company ~~continues to evaluate~~reviews its long-lived assets for impairment whenever events or circumstances indicate that the total carrying value of an asset or asset group may not be recoverable. In the second quarter, the Company performed an impairment analysis for the A321neo fleet and ~~model the full impact~~recorded an impairment charge of the standard and will apply the full retrospective transition method. The overall impact to equity as of the beginning of the retroactive reporting period, including the changes discussed above, as well as other less material changes, is expected to be between $160 million and $190$156 million.

In ~~February 2016,~~ the ~~FASB issued ASU 2016-02, "Leases" (Topic 842), which requires lessees~~third quarter, the Company determined there was additional impairment related to ~~recognize assets and liabilities for leases currently classified as operating leases. Under~~ the A321neo fleet due to new ~~standard, a lessee will recognize a liability on~~purchase activity in the ~~balance sheet representing~~period. The Company estimated the ~~lease payments owed, and a right-of-use-asset representing its right to use the underlying asset~~fair market value for the ~~lease term. For leases~~A321neo aircraft using available market price information with ~~a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets~~adjustments based on quantitative and ~~lease liabilities. At~~qualitative considerations. Based on this ~~time,~~fair market value, the Company ~~believes~~recorded an impairment charge of $123 million, reflecting the most significant impact to the financial statements will relate to the recording of a right-of-use asset associated with leased aircraft. Other leases, including airports and real estate, equipment, software and other miscellaneous leases 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),~~amount by 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 impliedcarrying value exceeded fair value of ~~a reporting unit’s goodwill~~the aircraft. This charge is included within Special items - fleet transition and other in the condensed consolidated statements of operations.

Other Fleet Related Disclosure

The ten A321neo aircraft that have been removed from operating service are classified as Assets held for sale in the condensed consolidated balance sheets as of September 30, 2023. Seven of these aircraft are classified as finance leases, whose lease liabilities are reflected within Current portion of long-term debt and finance leases and total $452 million as of September 30, 2023. Interest expense associated with the ~~carrying amount~~finance leases 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 components of the Company's net periodic benefit costs.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The ASU expands the activities that qualify for hedge accounting 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 Francisco and, to a lesser extent, Dallas Love Field, to other major business 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.

~~Merger-related costs~~

~~The Company incurred pretax merger-related costs of $24 million and $22~~$8 million for the ~~three months ended September 30, 2017 and 2016, respectively, and $88 million and $36 million for~~third quarter of 2023 was recognized within Special items - net non-operating in 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 thecondensed consolidated statements of operations. ~~The Company expects to continue to incur merger-related costs in the future as the integration continues.~~

~~Fair values 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~~Special charges were also 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~~2023 for other fleet transition costs, including accelerated aircraft ownership expenses, certain aircraft maintenance work performed as a result of the ~~assets acquired~~fleet retirements, adjustments to estimated costs to return the A320 fleet, and penalty rent for Airbus aircraft which have not yet been returned to the ~~liabilities assumed~~lessor as of the ~~acquisition date~~lease expiration date.

The following table summarizes our special charges for fleet transition costs for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Impairment of long-lived assets(a)	$	120	$	—	$	271	$	70

Other fleet transition costs	36		155		84		306
Special items - fleet transition and other	$	156	$	155	$	355	$	376

(a) Net of other immaterial activity recognized in the three and nine months ended September 30, 2023.

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents the primary source of the Company's revenue. Also included in Passenger revenue 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 of commissions. Cargo and other revenue includes freight and mail revenue, and to a lesser extent, other ancillary revenue products such as lounge membership and certain commissions.

The Company disaggregates revenue by segment in Note 10. The level of detail within the Company’s condensed consolidated statements of operations, segment disclosures, and in this footnote depict the nature, amount, timing, and uncertainty of revenue and how cash flows are affected by economic and other factors.

Passenger Ticket and Ancillary Services Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Passenger ticket revenue, net of taxes and fees	$	2,226	$	2,252	$	6,081	$	5,536
Passenger ancillary revenue	135		127		362		337
Mileage Plan passenger revenue	257		236		757		671
Total Passenger revenue	$	2,618	$	2,615	$	7,200	$	6,544

Mileage Plan Loyalty Program

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Passenger revenue	$	257	$	236	$	757	$	671
Mileage Plan other revenue	159		146		483		433
Total Mileage Plan revenue	$	416	$	382	$	1,240	$	1,104

Cargo and Other Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cargo revenue	$	29	$	37	$	97	$	102
Other revenue	33		30		93		88
Total Cargo and other revenue	$	62	$	67	$	190	$	190

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $33 million and $65 million from the prior year-end air traffic liability balance for the three months ended September 30, 2023 and 2022, and $621 million and $587 million from the prior year-end air traffic liability balance for the nine months ended September 30, 2023 and 2022.

Mileage Plan assets and liabilities

The Company records a receivable for amounts due from the affinity card partner and from other partners as mileage credits are sold until the payments are collected. The Company had $91 million of such receivables as of September 30, 2023 and $83 million as of December ~~14, 2016, at September 30, 2017 and December~~ 31, ~~2016 were as follows~~2022.

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


	Nine Months Ended September 30,
	2023		2022
Total Deferred Revenue balance at January 1	$	2,497	$	2,358
Travel miles and companion certificate redemption - Passenger revenue	(712)		(632)
Miles redeemed on partner airlines - Other revenue	(86)		(45)
Increase in liability for mileage credits issued	900		800
Total Deferred Revenue balance at September 30	$	2,599	$	2,481

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,~~2023, total cost basis for all marketable securities was ~~$1.6 billion. There were no significant differences between the cost basis and~~$1.9 billion, compared to a total fair value of $1.8 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 September 30, 2023.

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


	September 30, 2023						December 31, 2022
	Level 1		Level 2		Total		Level 1		Level 2		Total

Assets
Marketable securities
U.S. government and agency securities	$	508	$	—	$	508	$	505	$	—	$	505
Equity mutual funds	5		—		5		5		—		5
Foreign government bonds	—		10		10		—		25		25
Asset-backed securities	—		216		216		—		261		261
Mortgage-backed securities	—		123		123		—		196		196
Corporate notes and bonds	—		889		889		—		1,025		1,025
Municipal securities	—		53		53		—		62		62
Total Marketable securities	513		1,291		1,804		510		1,569		2,079
Derivative instruments
Fuel hedge contracts - call options	—		40		40		—		44		44
Interest rate swap agreements	—		13		13		—		15		15
Total Assets	$	513	$	1,344	$	1,857	$	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 ~~LIBOR-based~~ interest 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):


September 30, 2023	Cost Basis		Fair Value
Due in one year or less	$	403	$	395
Due after one year through five years	1,386		1,320
Due after five years	73		68
Due after 10 years	18		16
No maturity date	4		5
Total	$	1,884	$	1,804

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 September 30, 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 $566 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as ~~certain inputs used are unobservable.~~it is not actively traded and is valued using discounted cash flows which is an unobservable input.

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


	September 30, 2023		December 31, 2022


Fixed-rate debt	$	1,520	$	1,660

Estimated fair value	$	1,372	$	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 and finance lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. NoRefer to Note 2 for details regarding impairment ~~was recognized~~charges recorded in the three and nine months ended September 30, ~~2017 or September 30, 2016.~~2023.

~~NOTE 4. FREQUENT FLYER PROGRAMS~~

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

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 condensed consolidated balance ~~sheet~~sheets (in millions):


	September 30, 2023			December 31, 2022
Fixed-rate notes payable due through 2029	$	85		$	113
Fixed-rate PSP notes payable due through 2031	600			600
Fixed-rate EETC payable due through 2025 & 2027	835			947
Variable-rate notes payable due through 2035	907			514
Less debt issuance costs	(15)			(15)
Total debt	2,412			2,159
Less current portion(a)	284			276
Long-term debt, less current portion	$	2,128		$	1,883

Weighted-average fixed-interest rate	3.4		%	3.5		%
Weighted-average variable-interest rate	6.8		%	5.8		%

(a) Excludes finance lease liabilities recognized within Current portion of long-term debt and finance leases in the condensed consolidated balance sheets as of September 30, 2023.

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 $216 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at September 30, 2023, resulting in an effective weighted-average interest rate for the full debt portfolio of 4.3%.

During the nine months ended September 30, ~~2017~~,2023, the Company incurred debt of $495 million from multiple lenders and sources. New debt includes proceeds of $316 million which is secured by aircraft. Additionally, $179 million was incurred as part of an agreement to finance certain E175 deliveries. Debt from this agreement is reflected as a non-cash transaction within the supplemental disclosures in the condensed consolidated statements of cash flows. Also during the nine months ended September 30, 2023, the Company made scheduled debt payments of ~~$265~~$240 million and prepayments of $2 million.

Debt Maturity

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


	Total
Remainder of 2023	$	45
2024	286
2025	343
2026	292
2027	597
Thereafter	864
Total Principal Payments	$	2,427

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~~$626 million as of September 30, 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~~A second credit facility, which is secured by aircraft, was amended by the Company in the third quarter to increase its size to $400 million and extend its term to June 2026. Both facilities have variable interest rates based on SOFR plus a specified margin. A third credit facility for $76 million expires in June 2024 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.~~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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Service cost	$	8	$	12	$	22	$	34
Pension expense included in Wages and benefits	8		12		22		34

Interest cost	27		17		81		49
Expected return on assets	(28)		(32)		(85)		(96)
Amortization of prior service cost (credit)	—		(1)		—		(1)
Recognized actuarial loss	5		2		17		6
Pension expense included in Non-operating Income (Expense)	$	4	$	(14)	$	13	$	(42)

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~~2023 (in millions):


	Aircraft-Related Commitments(a)		Capacity Purchase Agreements and Other Obligations (b)
Remainder of 2023	$	460	$	56
2024	1,754		224
2025	1,438		227
2026	688		219
2027	334		220
Thereafter	591		739
Total	$	5,265	$	1,685

(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 Boeing 737 ("B737") aircraft, 55 Airbus aircraft, 15 Bombardier Q400 aircraft,~~other various sponsorship agreements and 21 Embraer 175 ("E175") with SkyWest Airlines, Inc. ("SkyWest"). The Company has an additional eight scheduled lease deliveries of A321neo aircraft through 2018, as well as 14 scheduled lease deliveries of E175 aircraft through 2018 to be flown by Skywest. All lease contracts have remaining non-cancelable lease terms ranging from 2017 to 2030. The Company has the option to increase capacity flown by SkyWest with eight additional E175 aircraft deliveries in 2020. Options to lease are not reflected in the commitments table above.investment commitments.

~~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 and engines. AsDetails for contractual aircraft commitments as of September 30, ~~2017~~,2023 are outlined below.


	Firm Orders	Options and Other Rights	Total
Aircraft Type	2023-2027	2025-2030	2023-2030
B737	89	105	194
E175	9	13	22
Total	98	118	216

The B737 fleet commitments outlined above represent the ~~Company had~~contractual commitments as defined in Alaska's existing order with Boeing as of September 30, 2023. Boeing has communicated to Alaska that certain B737 deliveries contracted in 2023 are expected to be delayed into 2024.

Alaska has contractual agreements as of September 30, 2023 to purchase ~~48 B737 aircraft (16 B737 NextGen aircraft and 32 B737 MAX aircraft, with deliveries~~seven of its leased A321neo aircraft. These transactions are expected to occur in the ~~remainder~~fourth quarter of ~~2017 through 2023)~~2023 and ~~23 E175~~first quarter of 2024. The obligations for these aircraft, ~~with deliveries~~including both the remaining lease payments and subsequent purchase, are reflected within Current portion of long-term debt and finance leases in ~~2018 through 2019, which reflects Horizon's deferral~~the condensed consolidated balance sheets as of ~~three E175 aircraft from 2017 to 2018. The Company also has cancelable purchase commitments for~~September 30, ~~Airbus A320neo aircraft with deliveries from 2020 through 2022. In addition, the Company has options to purchase 37 B737 aircraft~~2023 and ~~30 E175 aircraft. The cancelable purchase commitments and option payments~~ are not reflected in the ~~table~~tables above. Refer to Note 2 to the condensed consolidated financial statements for additional details.

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

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

Aircraft Maintenance ~~Deposits~~

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

Aircraft ~~Maintenance and Parts Management~~

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

~~Subsequent to September 30, 2017,~~ Alaska ~~entered into a similar contract~~has contracts for maintenance on its B737-800 and B737-900ER aircraft ~~engines. Payments under this agreement are not reflected in the table above.~~engines through 2026 and 2032, respectively. Horizon has a contract for maintenance on certain E175 aircraft 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~~

As part of the 2016 acquisition of Virgin America, ~~flight attendants~~Alaska assumed responsibility for ~~damages based on alleged violations~~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 ~~California~~Alaska's actual use (or non-use) of the mark. The possible range of contractual liability is between $10 million and ~~City~~$160 million. Alaska stopped making royalty payments in 2019 after ending all use of ~~San Francisco wage and hour laws. Plaintiffs received class certification in November 2016.~~the Virgin ~~America filed~~brand. On February 16, 2023, the commercial court issued a ~~motion for summary judgment seeking to dismiss all claims on various federal preemption grounds. In January 2017,~~ruling adopting Virgin Group’s interpretation of the ~~Court denied in part and granted in part Virgin America’s motion.~~license agreement. The Company has appealed the decision and believes the claims in ~~this~~the case are without factual and legal merit, ~~and intends to defend this lawsuit.~~

~~Management believes~~a position supported by Virgin America’s representations during pre-merger due diligence. Alaska also commenced a separate claim for breach of the ~~ultimate disposition of these matters is not likely to materially~~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, the Company suspended the share repurchase program ~~was paused in~~as required by the ~~second quarter of 2016 in anticipation of the acquisition of Virgin America.~~CARES Act. 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,~~2023, the Company has repurchased ~~4.7~~9.1 million shares for ~~$363~~$613 million under this program. ~~Subsequent to September 30, 2017, the Company~~No shares were repurchased ~~an additional 369,182 shares for $25 million.~~in 2022.

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


	Three Months Ended September 30, 2023			Nine Months Ended September 30, 2023
	Shares	Amount		Shares	Amount
2015 Repurchase Program—$1 billion	248,988	$	13	1,534,529	$	70

CARES Act Warrant Issuances

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
As taxpayer protection required under the Payroll Support Program (PSP) under the CARES Act, the Company granted the U.S. government 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.

~~Accumulated Other Comprehensive Loss~~

~~Components~~As of ~~accumulated other comprehensive loss, net~~September 30, 2023, there are 1,882,517 total warrants outstanding, with a weighted average strike price 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 )

$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.

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

Diluted EPS is calculated by dividing net income by the average number of common shares outstanding plus the number of additional common shares that would have been outstanding assuming the exercise of in-the-money stock options, ~~and~~ restricted stock units, and warrants, using the treasury-stock method. ~~For the~~ ~~three~~ ~~and nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016, anti-dilutive shares~~Anti-dilutive common stock equivalents excluded from the calculation of ~~EPS~~diluted earnings per share were ~~not material.~~1.2 million and 1.9 million for the three and nine months ended September 30, 2023, and 1.4 million and 1.7 million for the three and nine months ended September 30, 2022.

NOTE 9. ACCUMULATED OTHER COMPREHENSIVE LOSS

A roll forward of the amounts included in accumulated other comprehensive loss, net of tax (in millions), is shown below for the three and nine months ended September 30, 2023 and 2022:


	Marketable Securities		Employee Benefit Plan		Interest Rate Derivatives		Total






Balance at June 30, 2023, net of tax effect of $116	$	(64)	$	(311)	$	10	$	(365)
Reclassifications into earnings, net of tax impact of $(1)	2		3		—		5
Change in value, net of tax impact of $0	—		—		—		—
Balance at September 30, 2023, net of tax effect of $115	$	(62)	$	(308)	$	10	$	(360)

Balance at December 31, 2022, net of tax effect of $122	$	(80)	$	(319)	$	11	$	(388)
Reclassifications into earnings, net of tax effect of $(5)	9		11		—		20
Change in value, net of tax effect of $(2)	9		—		(1)		8
Balance at September 30, 2023, net of tax effect of $115	$	(62)	$	(308)	$	10	$	(360)


	Marketable Securities		Employee Benefit Plan		Interest Rate Derivatives		Total






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

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

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.~~revenue.

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~~revenue and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.

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

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

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

Operating segment information is as follows (in millions):


	Three Months Ended September 30, 2023
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenue
Passenger revenue	$	2,225	$	393	$	—	$	—	$	2,618		$	—	$	2,618
CPA revenue	—		—		104		(104)		—			—		—
Mileage Plan other revenue	146		13		—		—		159			—		159
Cargo and other revenue	60		—		—		2		62			—		62
Total Operating Revenue	2,431		406		104		(102)		2,839			—		2,839
Operating Expenses
Operating expenses, excluding fuel	1,484		297		89		(92)		1,778			156		1,934
Fuel expense	621		108		—		—		729			(35)		694
Total Operating Expenses	2,105		405		89		(92)		2,507			121		2,628






Non-operating Income (Expense)	—		—		(11)		1		(10)			(8)		(18)
Income (Loss) Before Income Tax	$	326	$	1	$	4	$	(9)	$	322		$	(129)	$	193
Pretax Margin									11.4		%			6.8		%

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





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

Three Months Ended September 30, 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, 2023
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)			Special Items(c)		Consolidated
Operating Revenue
Passenger revenue	$	6,143	$	1,057	$	—	$	—	$	7,200		$	—	$	7,200
CPA revenue	—		—		274		(274)		—			—		—
Mileage Plan other revenue	447		36		—		—		483			—		483
Cargo and other revenue	184		—		—		6		190			—		190
Total Operating Revenue	6,774		1,093		274		(268)		7,873			—		7,873
Operating Expenses
Operating expenses, excluding fuel	4,342		832		260		(261)		5,173			406		5,579
Fuel expense	1,672		274		—		—		1,946			(14)		1,932
Total Operating Expenses	6,014		1,106		260		(261)		7,119			392		7,511






Non-operating Income (Expense)	(3)		—		(29)		3		(29)			(14)		(43)
Income (Loss) Before Income Tax	$	757	$	(13)	$	(15)	$	(4)	$	725		$	(406)	$	319
Pretax Margin									9.2		%			4.1		%

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





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

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

(b)The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges.

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):


	September 30, 2023		December 31, 2022
Mainline	$	20,468	$	19,733
Horizon	1,320		1,157
Consolidating & Other	(6,623)		(6,704)
Consolidated	$	15,165	$	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 Quarter Review—highlights from the third quarter of ~~2017~~2023 outlining some of the major events that ~~happened~~occurred during the ~~period and how they affected our financial performance.~~

period.

•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~~.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 QUARTER REVIEW

~~Our~~Third Quarter Results

We recorded consolidated pretax income ~~was $427 million during~~for the third quarter of ~~2017,~~2023 under GAAP of $193 million, compared to ~~$402~~consolidated pretax income of $65 million in the third quarter of ~~2016. The increase in~~2022. Increased pretax income is primarily the result of ~~$25~~a $183 million ~~was primarily driven by~~decrease in aircraft fuel costs, and an ~~increase~~$81 million decrease in ~~revenues of $554 million,~~special operating and non-operating charges. These decreases were partially offset by a ~~$372~~$134 million increase in ~~non-fuel~~other operating expense ~~and a $143 million increase in fuel expense.~~categories.

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.

Operational Milestones

~~Operations Performance~~

~~During~~In the third quarter, our airlines leveraged our foundational strength of operational excellence, leading the industry in completion rate and finishing with an on-time performance higher than 80%. Additionally, Alaska completed its transition back to a single-fleet operator following the retirement of its A321neo aircraft in September. Subsequent to quarter end, Alaska reached an agreement with American Airlines to sell all ten A321neos, with sales expected to be completed by the first 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.2024.

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

~~We were not able to come to an~~ agreement ~~during negotiations or mediation~~ with ~~our pilots, so Alaska and~~ the Air Line Pilots Association ~~presented their respective positions to~~(ALPA), Alaska's pilots' wages underwent a ~~third-party arbitration panel during~~market review in the third quarter. ~~On October 30, 2017, we received~~Following this review, Alaska executed a ~~decision from the arbitration panel on new wage rates and retirement contributions~~Letter of Agreement with ALPA for ~~pilots of Alaska Airlines and Virgin America. This award is binding and is effective November 1, 2017. The wage rates equate~~a one-time market rate adjustment 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~~pay rates effective ~~April~~September 1, ~~2018~~2023.

Alaska is actively negotiating for new contracts with its mainline flight attendants represented by the Association of Flight Attendants, whose contract became amendable in December 2022, and ~~April 1, 2019.~~its mainline mechanics represented by the Aircraft Mechanics Fraternal Association, whose contract became amendable in October 2023. Horizon is actively negotiating for a new

~~The decision increases contribution rates for~~contract with its pilots, represented by the International Brotherhood of Teamsters, whose contract becomes amendable 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.~~December 2024.

We estimate the impact of this new contract over the status quo to be an incremental cost of approximately $24 million for the remainder of 2017, $150 million in 2018, and $180 million in 2019. Over the life of the contract, the average annualized impact is approximately $160 million to $165 million compared to the $140 million estimate of our proposal at arbitration.

Outlook

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

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

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

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

Currently, we expect to grow our combined network capacity in 2017 by 7.2%. The growth rate compares 2017 system-wide capacity to historical Air Group and Virgin America combined capacity in 2016. Current schedules indicate competitive capacity will increase by approximately 5% inFor the fourth quarter of ~~2017,~~2023, we anticipate our cost discipline and ~~approximately 9%~~operational excellence will continue to benefit unit costs, with CASMex expected to be down 3% to 5% on capacity up 11% to 14% as compared to the prior year. Although we have seen some slowing in the ~~first quarter of 2018.~~ demand environment, we expect our diversified product offerings and Mileage Plan revenue streams will lift total revenue up 1% to 4% over 2022. For the full year, headwinds from fuel prices which were not previously contemplated, coupled with decreased revenue expectations, have led us to reduce our expected full year adjusted pretax margin to 7% to 8%.

We ~~believe~~continue to remain focused on setting intentional targets and taking the appropriate steps to deliver on those targets. Changes to the operating environment and industry trends could lead to adjustments to the guidance provided as management aligns our business to be appropriately responsive. As we leverage our network and diversified revenue offerings for growth, our people are focused on keeping costs low and running a strong operation. These are competitive advantages we have cultivated over many years that ~~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~~will continue to serve 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~~2023 and ~~Virgin America for the 2016 comparative periods:~~beyond.

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~~$96 million, or ~~15%.~~14%, in the third 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 September 30,
(in millions)	2023		2022		% Change
Wages	$	602	$	514	17	%
Pension - Defined benefit plans	7		11		(36)	%
Defined contribution plans	51		39		31	%
Medical and other benefits	85		85		—	%
Payroll taxes	37		37		—	%
Total Wages and benefits	$	782	$	686	14	%

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

~~On a Combined Comparative basis, wages~~Wages increased ~~16% with an 18% increase~~$88 million, or 17%, on 4% growth in FTEs. ~~The increase~~When combined with FTE increases, higher wage rates stemming from market adjustments and annual step increases were the primary driver for incremental year-over-year expense for wages.

Incremental expense for defined contribution plans was driven by the change in ~~FTEs is attributable to the growth in our business,~~wages as well as ~~the growth~~higher matching contributions for several labor groups. Decreased defined benefit expense was driven by changes in ~~McGee Air Services which has brought certain airport ground service positions in-house that were previously reflected~~actuarial assumptions.

Aircraft maintenance

Aircraft maintenance expense increased by $26 million, or 28%, in ~~our Contracted services expense. Additionally, irregular operations and flight cancellations during~~ the third quarter ~~resulted~~of 2023. The increase was primarily driven by the new B737-900ER power-by-the-hour contract in ~~significant overtime for our customer service agents and reservations agents.~~2023, as well as increased aircraft utilization.

Aircraft rent

~~Depreciation and Amortization~~

~~Depreciation and amortization~~Aircraft rent expense decreased by $6$28 million, or 6%37%, ~~during~~in the third 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 in~~ the ~~estimated useful lives~~retirement of ~~certain B737~~23 leased A320 aircraft. The A321neo fleet retirement also contributed to the decrease, as seven aircraft were reclassified from operating leases to finance leases and three aircraft ~~and related parts from 20 years to 25 years, which was effective October 1, 2016,~~were purchased during 2023. These decreases were partially offset by delivery of four leased B737-9 aircraft ~~additions~~ since ~~September 30, 2016.~~the third quarter of 2022.

Landing fees and other rentals

Landing fees and other rentals increased by $22 million, or 14%, in the third quarter of 2023. The increase was driven primarily by higher terminal rent costs resulting from both rate and volume increases at many of our facilities. Landing fees also increased due to higher rates and larger landing weights due to a shift in the mix of flying from Regional to Mainline and upgauging our fleet.

Contracted services

Contracted services increased by $17 million, or 20%, in the third quarter of 2023. The increase was driven primarily by higher rates charged by vendors for services as well as an increase in passengers.

Food and beverage service

Food and beverage service increased by $10 million, or 19%, in the third quarter of 2023. The increase was driven by a combination of 7% growth in revenue passengers and higher costs for food, food service supplies, and transportation.

Other ~~Operating Expenses~~expense

Other ~~operating expenses increased~~expense decreased by ~~$58~~$22 million, or ~~63%~~11%, ~~during~~in the third quarter of ~~2017 compared to the same period in 2016. On a Combined Comparative basis, other operating expenses increased by $35 million, or 30%.~~2023. The ~~increase is~~decrease was primarily due to additional costs incurred for crew hotel costs, passenger disruption costs, training costs for front-line employees, scrapped parts inventory, and certain information technology costs. These increases were largely driven by one-time employee recognition costs of $28 million recorded in the ~~growth in our business and increased costs from flight cancellations and delays during the quarter. .~~

~~Nonoperating Income (Expense)~~

~~During the~~ third quarter of ~~2017 we~~2022, partially offset by increases to miscellaneous variable costs in 2023 consistent with increased capacity.

Special items - fleet transition and other

We recorded ~~nonoperating expense~~expenses associated with the Company's fleet transition of ~~$12 million compared to income of $2~~$156 million in the ~~same period in 2016. On a Combined Comparative basis, nonoperating expense increased by $9 million, primarily due~~third quarter of 2023. Refer to ~~interest expense incurred in~~Note 2 to the ~~current year on the debt issued in 2016 to finance the acquisition of Virgin America.~~consolidated financial statements for additional details.

~~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.~~results.

Mainline

Mainline ~~recorded~~operations reported an adjusted pretax profit of ~~$422 million in the~~ ~~third~~ ~~quarter of 2017 compared to $383 million in the~~ ~~third~~ quarter of 2016. On a Combined Comparative basis, Mainline adjusted pretax profit decreased by $48 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:

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 million decrease in Combined Comparative pretax profit was primarily driven by a $77 million increase in non-fuel operating expenses and a $59 million increase in economic fuel cost, partially offset by a $95 million increase in operating revenues. The increase in non-fuel expense was primarily driven by higher wages to support our growth and higher other operating expenses as described above. The 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~~$326 million in the third quarter of ~~2017~~2023, compared to ~~$35~~a profit of $446 million in the same period in 2022. The $120 million decrease was driven primarily by a $132 million increase in non-fuel operating expenses. Compared to the prior year, non-fuel operating expenses increased primarily due to higher wage rates across various labor groups. Higher variable costs, largely consistent with the overall growth in capacity and departures, also contributed to the increase.

Regional

Regional operations reported adjusted pretax profit of $1 million in the third quarter of ~~2016.~~2023, compared to a loss of $2 million in the same period in 2022. The ~~decrease in pretax profit~~$3 million improvement was ~~attributable to higher non-fuel operating~~driven by decreased fuel expense ~~due to increased~~on less capacity and ~~the operational disruptions at Horizon during the third quarter. Increased costs were~~a lower price per gallon, partially offset by ~~a $13 million increase in operating revenues as described in Passenger Revenue—Regional.~~decreased revenue on less capacity and higher wage rates.

Horizon

Horizon ~~incurred a~~reported an adjusted pretax profit of $5$4 million in the third quarter of ~~2017~~2023, compared to $9a loss of $6 million in the ~~third quarter of 2016.~~same period in 2022. The ~~change in pretax profit~~$10 million improvement was ~~primarily~~ driven by updates to internal rates under Horizon's CPA with Alaska and cost savings following Horizon’s transition to a ~~$4 million increase in operating revenue,~~single fleet. These improvements were partially offset by higher ~~non-fuel operating expenses attributable to higher wage and pilot training~~interest expense ~~as a result of the increase in FTEs, along with other increased costs~~ associated with ~~flight cancellations during the current quarter.~~ debt financing of new E175 deliveries in 2023.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2023 TO NINE MONTHS ENDED SEPTEMBER 30, ~~2016~~2022

Our consolidated net income for the nine months ended September 30, ~~2017~~2023 was ~~$661~~$237 million, or ~~$5.31~~$1.84 per ~~diluted~~ share, compared to consolidated net income of ~~$700~~$36 million, or ~~$5.63~~$0.28 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.2022.

~~Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, our~~Our adjusted net income for the nine months ended September 30, ~~2017~~2023 was ~~$721~~$545 million, or ~~$5.79~~$4.22 per ~~diluted~~ share, compared to an adjusted net income of ~~$717~~$438 million, or ~~$5.77~~$3.42 per ~~diluted~~ share, infor the nine months ended September 30, ~~2016.~~2022. The following ~~tables reconcile~~table reconciles our adjusted net income and ~~diluted~~adjusted EPS to amounts as reported in accordance with GAAP:


	Nine Months Ended September 30,
	2023				2022
(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income per share	$	237	$	1.84	$	36	$	0.28
Mark-to-market fuel hedge adjustments	(14)		(0.11)		64		0.50
Special items - fleet transition and other	355		2.75		376		2.94
Special items - labor and related	51		0.39		90		0.70
Special items - net non-operating	14		0.11		—		—
Income tax effect of reconciling items above	(98)		(0.76)		(128)		(1.00)
Non-GAAP adjusted net income per share	$	545	$	4.22	$	438	$	3.42

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~~CASM excluding fuel and special items reconciliation is summarized below:


	Nine Months Ended September 30,
(in cents)	2023		2022		% Change
Consolidated:
CASM	14.60	¢	15.56	¢	(6)	%
Less the following components:

Aircraft fuel, including hedging gains and losses	3.76		4.37		(14)	%
Special items - fleet transition and other	0.69		0.82		(16)	%
Special items - labor and related	0.10		0.20		(50)	%


CASM excluding fuel and special items	10.05	¢	10.17	¢	(1)	%

Mainline:
CASM	13.47	¢	14.59	¢	(8)	%
Less the following components:

Aircraft fuel, including hedging gains and losses	3.49		4.44		(21)	%
Special items - fleet transition and other	0.75		0.69		9	%
Special items - labor and related	0.11		0.22		(50)	%


CASM excluding fuel and special items	9.12	¢	9.24	¢	(1)	%

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 %
OPERATING REVENUE

~~COMBINED COMPARATIVE OPERATING STATISTICS~~

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

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


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

~~COMBINED COMPARATIVE OPERATING REVENUES~~

Total operating ~~revenues~~ revenue increased~~$1.6 billion~~, $706 million, or ~~35%~~10%, during the first nine months of ~~2017~~2023 compared to the same period in ~~2016. On a Combined Comparative basis, total operating revenues increased $330 million, or 6%.~~2022. The changes ~~including the reconciliation of the impact of Virgin America on the comparative results,~~ are summarized in the following table:


	Nine Months Ended September 30,
(in millions)	2023		2022		% Change
Passenger revenue	$	7,200	$	6,544	10	%
Mileage Plan other revenue	483		433		12	%
Cargo and other revenue	190		190		—	%
Total Operating Revenue	$	7,873	$	7,167	10	%

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

Passenger ~~Revenue—Mainline~~revenue

~~Mainline passenger~~On a consolidated basis, Passenger revenue for the first nine months of ~~2017~~2023 increased~~45%~~ by $656 million, or 10%, on a ~~45%~~12% increase in ~~capacity,~~passenger traffic, partially offset by a 2% decrease in yield. The increase was primarily driven ~~primarily~~ by increased departures flown by larger aircraft in our Mainline fleet. Redemptions by Mileage Plan members also provided a benefit over the ~~acquisition of Virgin America,~~prior year, with greater redemption on both Alaska and ~~flat PRASM compared~~partner airlines.

We expect to see fourth quarter Passenger revenue consistent with the ~~same period~~prior year due to increases in ~~2016~~. passenger traffic being offset by decreased yields.

Mileage Plan other revenue

On a ~~Combined Comparative~~consolidated basis, ~~mainline passenger~~Mileage Plan other revenue increased $50 million, or 12%, in the first nine months of 2023. The increase was driven by higher commissions from our bank card partners due to increased spend levels, annual membership fees, and credit card acquisitions.

We expect to see continued strength in Mileage Plan other revenue for the ~~nine months ended September 30, 2017~~remainder of 2023, enabled by higher commissions from 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.~~card spend.

~~Passenger Revenue—Regional~~

OPERATING EXPENSES

~~Regional passenger revenue~~

Total operating expenses increased by ~~$43~~ $391 million,, or 6%5%, 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%.~~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:


	Nine Months Ended September 30,
(in millions)	2023		2022		% Change
Fuel expense	$	1,932	$	2,000	(3)	%
Non-fuel operating expenses, excluding special items	5,173		4,654		11	%

Special items - fleet transition and other	355		376		(6)	%
Special items - labor and related	51		90		(43)	%


Total Operating Expenses	$	7,511	$	7,120	5	%

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

Fuel ~~Expense~~expense

Aircraft fuel expense ~~increased $458~~decreased $68 million, or ~~77%~~3%, compared to the nine months ended September 30, ~~2016. On a Combined Comparative basis, aircraft fuel expense increased $229 million, or 28%.~~2022. The elements of the change are illustrated in the ~~following~~ table:


	Nine Months Ended September 30,
	2023				2022
(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	$	1,899	$	3.06	$	2,103	$	3.67
(Gain)/loss on settled hedges	47		0.08		(167)		(0.29)
Consolidated economic fuel expense	$	1,946	$	3.14	$	1,936	$	3.38
Mark-to-market fuel hedge adjustments	(14)		(0.02)		64		0.11
GAAP fuel expense	$	1,932	$	3.12	$	2,000	$	3.49
Fuel gallons			620				573

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

~~On a Combined Comparative basis,~~Raw fuel expense decreased 10% in the ~~raw fuel price~~first nine months of 2023 compared to the first nine months of 2022, due to lower per gallon costs, partially offset by increased ~~21%~~fuel consumption. Raw fuel expense per gallon decreased by approximately 17% due to ~~higher West Coast~~lower 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~~fuel, both of which have decreased in ~~raw fuel price per gallon during~~ the first nine months of ~~2017 was~~2023 compared to the prior year. Fuel gallons consumed increased 8%, driven by ~~a 19% increase in crude oil prices and a 38% increase in refining margins.~~increased capacity.

WeEconomic fuel expense includes losses recognized ~~losses of $14 million and $12 million~~ for hedges that settled in the first nine months of ~~2017 and 2016 as reported.~~2023 of $47 million, compared to gains of $167 million in the same period in 2022. These amounts represent ~~the~~ cash paid for premium expense, offset by any cash received from those ~~hedges.~~hedges at settlement.

We ~~currently~~ expect our economic fuel ~~price~~cost per gallon ~~to be higher~~ in the fourth quarter ~~of 2017 compared~~ to ~~the fourth quarter of 2016 due~~range between $3.30 to ~~our current estimate of higher crude prices and higher refining margins.~~$3.40 per gallon.

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


	Nine Months Ended September 30,
(in millions)	2023		2022		% Change
Wages and benefits	$	2,259	$	1,931	17	%
Variable incentive pay	149		140		6	%
Aircraft maintenance	367		331		11	%
Aircraft rent	161		222		(27)	%
Landing fees and other rentals	502		435		15	%
Contracted services	290		243		19	%
Selling expenses	231		218		6	%
Depreciation and amortization	330		310		6	%
Food and beverage service	176		143		23	%
Third-party regional carrier expense	164		145		13	%
Other	544		536		1	%
Total non-fuel operating expenses, excluding special items	$	5,173	$	4,654	11	%

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

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

Wages and ~~Benefits~~benefits

Wages ~~and benefits~~ ~~increased~~ ~~during the first~~ ~~nine~~ ~~months of~~ ~~2017~~ by ~~$384 million, or~~ ~~38%, compared to~~ ~~2016. On a Combined Comparative basis, total wages~~ and benefits increased by ~~$165~~$328 million, or ~~13%~~17%, ~~compared to 2016.~~in the first nine months of 2023. The primary components of wages and benefits are shown in the following table:


	Nine Months Ended September 30,
(in millions)	2023		2022		% Change
Wages	$	1,736	$	1,467	18	%
Pension - Defined benefit plans	22		34		(35)	%
Defined contribution plans	151		116		30	%
Medical and other benefits	228		207		10	%
Payroll taxes	122		107		14	%
Total Wages and benefits	$	2,259	$	1,931	17	%

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

~~On a Combined Comparative basis, wages~~Wages increased ~~$135~~$269 million, or ~~15%~~18%, on ~~a 14%~~5% growth in FTEs. When combined with FTE increases, higher wage rates stemming from market adjustments and annual step increases were the primary driver for incremental year-over-year expense for wages and related taxes. Higher stock-based compensation also contributed to the increase in ~~FTEs. The increase~~wages, driven by additional stock award grants within the period.

Incremental expense for defined contribution plans was driven by the change in ~~FTEs is attributable to the growth of our business and increased staffing during irregular operations,~~wages 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~~higher matching contributions for several labor groups. Increased expense for medical and other benefits was primarily driven by ~~higher wage rates for certain labor groups. The first nine months of 2017 also include $9 million of ratification bonus~~an increase in claims compared to the prior year and incremental FTEs. Decreased defined benefit expense was driven by changes in ~~connection with the agreement reached with Horizon's pilots during the second quarter.~~actuarial assumptions.

~~For the full year, we~~We expect to see higher wages and benefits ~~to increase at a rate greater than capacity growth on a combined comparative basis,~~for the remainder of 2023 due to ~~higher~~the increase in wage ~~rates for certain labor groups~~rates. Wages and ~~the continued growth of McGee Air Services. Our forecast includes the impact of the pilot arbitration decision which was received subsequent~~benefits could also increase further in 2023 due to ~~quarter end, and results in an estimated $24 million of incremental costs~~agreements we may reach in the fourth quarter ~~of 2017.~~with represented labor groups.

~~Variable Incentive Pay~~Aircraft maintenance

~~Variable incentive pay~~Aircraft maintenance expense increased ~~during~~by $36 million, or 11%, in 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~~2023. The increase was primarily driven by ~~a change in~~ the ~~estimated useful lives of certain B737 operating~~new B737-900ER power-by-the-hour contract and increased aircraft ~~and related parts from 20 years to 25 years, which was effective October 1, 2016,~~utilization, partially offset by $35 million of lease return costs in the first quarter of 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 other since the announcement of our fleet transition plan in the second quarter of 2022.

We expect aircraft ~~additions since September 30, 2016.~~

~~For the full year, we expect depreciation and amortization~~maintenance to ~~be 5-6% lower than in 2016 on a combined comparative basis~~increase for the ~~same~~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. Higher aircraft utilization will also contribute to an increase in aircraft maintenance.

Aircraft rent

Aircraft rent expense decreased by $61 million, or 27%, in the first nine months of 2023. The decrease was driven by the retirement of 23 leased A320 aircraft. The A321neo fleet retirement also contributed to the decrease, as seven aircraft were reclassified from operating leases to finance leases and three aircraft were purchased during 2023. These decreases were partially offset by delivery of four leased B737-9 aircraft since the third quarter of 2022.

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.

Landing fees and other rentals

Landing fees and other rentals increased by $67 million, or 15%, in the first nine months of 2023. The increase was driven primarily by higher terminal rent costs resulting from both rate and volume increases at many of our facilities. Landing fees also increased due to higher rates and larger landing weights due a shift in the mix of flying from Regional to Mainline and upgauging our fleet.

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 $47 million, or 19%, in the first nine months of 2023. The increase was primarily driven by higher rates charged by vendors for services as well as an increase in passengers.

We expect contracted services to increase for the remainder of 2023 as compared to 2022 due to the reasons ~~mentioned~~described above.

Food and ~~Beverage Service~~beverage service

Food and beverage service ~~expense~~ increased ~~$52~~by $33 million, or ~~56%. On~~23%, in the first nine months of 2023. The increase was driven by a ~~Combined Comparative basis,~~combination of 8% growth in revenue passengers 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 ~~expense increased $13 million, or 10% due~~for the remainder of 2023 as compared to ~~increased number of passengers, premium class offerings and enhancements to our onboard menu offerings to provide higher quality food and beverage products.~~2022.

~~For the full year, we expect food and beverage~~Third-party regional carrier 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,~~the CPA with Alaska, increased ~~$12~~$19 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%~~13%, 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,~~2023. The increase in third-party regional carrier expense is driven by incremental SkyWest-operated departures. SkyWest departures have risen due to the annualization of ten E175 aircraft operating under the CPA which were delivered during the first half of 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 ~~$36~~2022 due to incremental departures and block hours, as well as higher wage rates for flight crews.

Other expense

Other expense increased $8 million, ~~as reported and $44 million on a Combined Comparative basis~~or 1%, in the first nine months of ~~2016.~~2023. Costs ~~incurred~~increased as a result of crew-related expenses due to contract improvements for Alaska pilots, coupled with additional professional services and software expenses. These increases were partially offset by one-time employee recognition costs of $28 million recorded in the third quarter of 2022.

We expect other expense will continue to be higher for the remainder of 2023 as compared to 2022 due to overall growth throughout our network.

Special items - fleet transition

We recorded expenses associated with the Company's fleet transition of $355 million in the first nine months of ~~2017 consisted primarily of severance~~2023. Refer to Note 2 to the consolidated financial statements for additional details.

Special items - labor and ~~retention and IT integration costs.~~other

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~~recorded a nonrecurring expense of ~~$40 million, compared to income of $6~~$51 million in the ~~same period in 2016. On a Combined Comparative basis, nonoperating expense increased by $32 million, primarily~~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 ~~condensed~~ consolidated financial statements for a detailed description of each segment. Below is a summary of each segment's ~~profitability.~~results.

Mainline

Mainline operations reported an 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. Higher raw fuel prices and an increase in 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 pretax profit of $40~~$757 million in the first nine months of ~~2017,~~2023, compared to ~~$72~~a profit of $647 million in the same period in 2022. The $110 million improvement was driven by a $708 million increase in operating revenue, partially offset by a $534 million increase in non-fuel operating expense and a $49 million increase in fuel expense.

As compared to the prior year, higher revenue is primarily attributable to a 15% increase in traffic driven by the increase in capacity. Non-fuel operating expenses increased, driven by higher wage rates and higher variable costs, largely consistent with the overall growth in capacity and departures. Additional gallons consumed and prior year gains from settled hedges drove the increase in fuel expense.

Regional

Regional operations reported an adjusted pretax loss of $13 million in the first nine months of ~~2016.~~2023, compared to a loss of $59 million in the same period in 2022. The ~~decrease in pretax profit~~$46 million improvement was ~~attributable to higher non-fuel operating~~primarily driven by decreased fuel expense due ~~in large part~~ to ~~increased capacity~~a lower price per gallon and ~~higher raw fuel costs, partially offset by a $43 million increase in operating revenues as described in Passenger Revenue—Regional.~~fewer gallons consumed.

Horizon

Horizon ~~incurred a~~reported an adjusted pretax loss of ~~$11~~$15 million in the first nine months of ~~2017,~~2023, compared to ~~pretax profit~~a loss of ~~$14~~$18 million in the same period in ~~2016.~~2022. The ~~change~~$3 million improvement was driven by decreased operating expenses consistent with less flying and other cost savings following Horizon’s transition to a single fleet, as well as updates to internal rates under Horizon’s CPA with Alaska. These improvements were partially offset by lower overall CPA revenue consistent with less flying, as well as higher ~~non-fuel expenses and lower CPA Revenues (100% of which are from Alaska and eliminated in consolidation). Non-fuel expenses increased primarily due to higher wage and training~~interest expense ~~as a result of the increase in FTE’s, increased costs~~ associated with ~~flight cancellations primarily due to a shortage~~debt financing of ~~pilots necessary to fly the schedule, and a $9 million ratification bonus expense~~new E175 deliveries in ~~connection with the agreement with Horizon's pilots.~~2023.

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~~$2.5 billion;

•Cash flows from ~~operations;~~

operations of $1.1 billion;

~~Our 64~~•62 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~~$550 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,~~2023, we took free and clear delivery of ~~ten B737-900ER aircraft and ten E175~~five owned Boeing 737-9 aircraft. We incurred new of debt of $361 million and made debt payments totaling ~~$265~~$93 million. We ended the quarter with a debt-to-capitalization ratio of 48%, within our target range of 40% to 50%. We continued share repurchases, spending $13 million in the third 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)	September 30, 2023			December 31, 2022			Change
Cash and marketable securities	$	2,451		$	2,417		1 %
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	29		%	29		%	—
Long-term debt, net of current portion	2,128			1,883			13%
Shareholders’ equity	$	4,093		$	3,816		7%


Debt-to-capitalization, including operating and finance leases
(in millions)	September 30, 2023			December 31, 2022			Change
Long-term debt, net of current portion	$	2,128		$	1,883		13%
Capitalized operating leases	1,263			1,621			(22)%
Capitalized finance leases(a)	452			—			NM
Adjusted debt, net of current portion of long-term debt	$	3,843		$	3,504		10%
Shareholders' equity	4,093			3,816			7%
Total invested capital	$	7,936		$	7,320		8%

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

(a)To best reflect our leverage at September 30, 2023, we included our capitalized finance lease balances, which are recognized within the Current portion of long-term debt and finance leases line in the condensed consolidated balance sheets.

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


Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items, and rent
(in millions)	September 30, 2023		December 31, 2022
Current portion of long-term debt and finance leases	$	736	$	276
Current portion of operating lease liabilities	150		228
Long-term debt	2,128		1,883
Long-term operating lease liabilities, net of current portion	1,113		1,393
Total adjusted debt	4,127		3,780
Less: Cash and marketable securities	2,451		2,417
Adjusted net debt	$	1,676	$	1,363

(in millions)	Twelve Months Ended September 30, 2023		Twelve Months Ended December 31, 2022
GAAP Operating Income(a)	$	385	$	70
Adjusted for:
Special items	520		580
Mark-to-market fuel hedge adjustments	(2)		76
Depreciation and amortization	435		415
Aircraft rent	230		291
EBITDAR	$	1,568	$	1,432
Adjusted net debt to EBITDAR	1.1x		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 months of ~~2017,~~2023, net cash provided by operating activities was ~~$1.4~~$1.1 billion, compared to ~~$1.2~~$1.4 billion ~~during~~in 2022. Cash provided by ticket sales and from our co-branded credit card agreement are the ~~same period in 2016.~~ 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~~$306 million ~~increase~~net decrease in our operating cash flows ~~is primarily attributable~~was due to ~~increased ticket sales~~a combination of factors. 2022 operating cash flows included federal income tax refunds of $260 million. Additionally, growth in our air traffic liability decreased $125 million and payments made in 2023 for ~~future travel~~our 2022 performance-based pay program were approximately $110 million higher than payments in 2022 for our 2021 program. These amounts were partially offset by an improved net income compared to the prior year resulting from the overall growth in 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.year.

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

Cash Used in Investing Activities

Cash used in investing activities was ~~$1.1 billion~~$810 million during ~~the first~~ ~~nine~~ ~~months of~~ ~~2017, compared to~~ ~~$641 million~~ ~~during the same period of~~ ~~2016. Our capital expenditures were~~ ~~$841 million~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2017~~, an increase of $332 million compared to the nine months ended September 30, 2016. This is primarily driven by more aircraft purchases and higher spend on other equipment compared to the same period of 2016. Our net purchases of marketable securities increased by $202 million from the prior year, primarily driven by stronger operating cash flows in the first nine months of ~~2017.~~2023, compared to $888 million in 2022. The change was due to a combination of factors. Marketable securities activity was $287 million of net sales during the first nine months of 2023, compared to $61 million in 2022. This amount was partially offset by an increase in capital expenditures, which were $44 million higher compared to 2022. Cash used in investing during the first nine months of 2023 was also impacted by the purchase of three previously leased A321neo aircraft, included in Other investing activities, which are expected to be sold to American Airlines in the fourth quarter of 2023 and first quarter of 2024.

Cash Provided by (Used in) Financing Activities

Cash provided by financing activities was $12 million during the first nine months of 2023, compared to cash used in financing activities of $296 million in 2022. The change was largely driven by $313 million in new debt proceeds and $91 million less in payments for outstanding long-term debt compared to 2022. These amounts were partially offset by common stock repurchases of $70 million in 2023 and a decrease of cash flows from other financing activities of $26 million.

MATERIAL CASH COMMITMENTS

Material cash requirements include the following contractual and other obligations:

Aircraft Commitments

As of September 30, 2023, Alaska has firm orders to purchase 89 B737 aircraft with deliveries between 2023 and 2027 and a firm commitment to lease one B737-9 aircraft with delivery in 2023. Alaska has rights for 105 additional B737-10 aircraft between 2026 and 2030. Alaska also has commitments to lease two B737-800 freighters with deliveries in 2023 and 2024.

Boeing has communicated to Alaska that certain B737 deliveries contracted in 2023 are expected to be delayed into 2024. The anticipated fleet delivery schedule outlined below reflects the expected impact of these delays. Alaska continues to work with Boeing to structure delivery timelines in a manner that supports Alaska's capacity growth plans.

As of September 30, 2023, Horizon has commitments to purchase nine E175 aircraft with deliveries between 2024 and 2026. Horizon has options to acquire 13 E175 aircraft between 2025 and 2026. The E175 deliveries expected through the end of 2024 are covered under a financing agreement executed in the second quarter of 2023. Capital expenditures for these deliveries, which are included within aircraft-related commitments in the contractual obligations table below, ~~reflects our full-year expectation for capital expenditures and additional expenditures if~~will be reflected as a non-cash transaction in the condensed consolidated statements of cash flows. Subsequent to quarter end, two of Horizon's 13 E175 options ~~are exercised.~~ expired.

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

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


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

~~Cash Used by Financing Activities~~

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

~~CONTRACTUAL OBLIGATIONS AND COMMITMENTS~~

~~Aircraft Commitments~~

~~As of September 30, 2017,~~future fleet activity, we have ~~firm orders~~incorporated anticipated delivery delays and other modifications of our order book as agreed to ~~purchase or lease 93 aircraft. We also have cancelable purchase commitments for 30 Airbus A320neo~~in principle 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 toBoeing into 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, which summarizes our expected fleet ~~activity~~count by year, as of ~~September 30, 2017:~~November 2, 2023:


	Actual Fleet	Anticipated Fleet Activity
Aircraft	September 30, 2023	2023 Changes	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	59	—	59	—	59	—	59
B737-900	12	—	12	—	12	—	12
B737-900ER	79	—	79	—	79	—	79
B737-8	—	1	1	7	8	12	20
B737-9	56	8	64	17	81	—	81
B737-10	—	—	—	—	—	11	11


Total Mainline Fleet	220	10	230	25	255	23	278

E175 operated by Horizon	41	—	41	3	44	3	47
E175 operated by third party	42	—	42	—	42	1	43
Total Regional Fleet	83	—	83	3	86	4	90
Total	303	10	313	28	341	27	368

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		Weighted-Average Crude Oil Price per Barrel	Average Premium Cost per Barrel


















Fourth Quarter of 2023	50	%	$96	$7
Full Year 2023	50	%	$96	$7
First Quarter of 2024	50	%	$90	$5
Second Quarter of 2024	40	%	$90	$5
Third Quarter of 2024	30	%	$88	$5
Fourth Quarter of 2024	20	%	$87	$5
Full Year 2024	35	%	$89	$5
First Quarter of 2025	10	%	$92	$5
Full Year 2025	2	%	$92	$5

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 November 2, 2023 and reflects anticipated delivery delays and other modifications of our order book as agreed to in principle with Boeing. For agreements with variable terms, amounts included reflect our minimum obligations.


(in millions)	Remainder of 2023		2024		2025		2026		2027		Beyond 2027		Total
Debt obligations	$	45	$	286	$	343	$	292	$	597	$	864	$	2,427
Lease commitments(a)	454		265		195		194		188		841		2,137

Aircraft-related commitments(b)	460		1,211		1,337		1,093		587		591		5,279


Interest obligations(c)	23		120		104		102		92		150		591
CPA and other obligations	56		224		227		219		220		739		1,685
Total	$	1,038	$	2,106	$	2,206	$	1,900	$	1,684	$	3,185	$	12,119

(a)Lease commitments include minimum payments for aircraft operated under operating leases and aircraft removed from operating service which remain under operating and finance leases, as we have remaining cash obligations under existing terms. It also includes minimum lease payments for facilities.

(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 September 30, ~~2017~~2023.

Debt Obligations and Interest Obligations

The Company primarily issues debt to fund purchases of aircraft or other capital expenditures. During the nine months ended September 30, 2023, the Company incurred new debt of $495 million and repaid $242 million in existing debt. At September 30, 2023, our debt portfolio carries a weighted average interest rate of 4.3%. Interest is paid with regular debt service. Refer to Note 5 to the consolidated financial statements for further discussion of our debt and interest balances.

CPA and Other Obligations

We have obligations primarily associated with the non-lease components of our capacity purchase agreement between Alaska and SkyWest, as well as other various sponsorship agreements and investment commitments.

(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
Leased Aircraft Return Costs


~~(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.~~

For many of our leased aircraft, contractual terms require us 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 to return leased aircraft are accrued when the costs are probable and reasonably estimable, usually over the twelve months prior to the lease return, unless a determination is made to remove the leased asset from operation. If the leased aircraft is removed from the operating fleet, the estimated cost to return is accrued at the time of removal. If a leased aircraft has a known early retirement date in the future, the estimated cost to return is accrued through the retirement date. 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. A total of $165 million is accrued for upcoming lease returns at September 30, 2023, including costs recorded in prior year periods.

Credit Card Agreements

~~We have~~Alaska has 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 fuel (SAF), enabling new technologies including zero emission aircraft in the future, and using credible offsetting and removal technologies to close the gaps to our emissions 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 through 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.

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 and nine months ended September 30, ~~2017.~~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 and finance 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";~~ASM; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ~~ASM;~~ASM, or "unit cost"; 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)~~and finance 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~~,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~~.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~~,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~~be probable and estimable.

As part of the ~~relevant law and facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions~~2016 acquisition of ~~judges and juries.~~

~~In 2015, three flight attendants filed a class action lawsuit seeking to represent all~~ Virgin America, ~~flight attendants~~Alaska assumed responsibility for ~~damages based on alleged violations~~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 ~~California~~Alaska's actual use (or non-use) of the mark. The possible range of contractual liability is between $10 million and ~~City~~$160 million. Alaska stopped making royalty payments in 2019 after ending all use of ~~San Francisco wage~~the Virgin brand. On February 16, 2023, the commercial court issued a ruling adopting Virgin Group’s interpretation of the license agreement. The Company has appealed the decision and hour laws. Plaintiffs received class certification in November 2016. Virgin America filed a motion for summary judgment seeking to dismiss all claims on various federal preemption grounds. In January 2017, the Court denied in part and granted in part Virgin America’s motion. Virgin America believes the claims in ~~this~~the case are without factual and legal merit, ~~and intends to defend this lawsuit.~~a position supported by Virgin America’s representations during pre-merger due diligence. 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 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)






July 1, 2023 - July 31, 2023	141,538	$	51.08
August 1, 2023 - August 31, 2023	107,450	$	46.99
September 1, 2023 - September 30, 2023	—	$	—
Total	248,988	$	49.32	$	387

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 September 30, 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”).



ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.



ITEM 4. MINE SAFETY DISCLOSURES

None.



ITEM 5. OTHER INFORMATION

~~None.~~During the three months ended September 30, 2023, no director or officer of Alaska Air Group adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement, as such terms are defined in Item 408(a) of Regulation S-K promulgated under the Securities Exchange Act of 1934.



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~~2023

EXHIBIT INDEX

Exhibit
Number

Exhibit
Description

Form

Date of First Filing

Exhibit Number

3.1

Amended and Restated Certificate of Incorporation of Registrant

10-Q

August 3, 2017

3.1

3.2

Amended and Restated Bylaws of Registrant

8-K

December 15, 2015

3.2

10.1#†

Amendment No. 22 to Purchase Agreement COM0041-16 between Embraer S.A. and Horizon Air Industries, Inc.

10-Q

10.2#†

Amendment No. 23 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

104†

Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

†

Filed herewith

Indicates management contract or compensatory plan or arrangement.

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

Exhibit
Number
Exhibit
Description
Form Date of First Filing Exhibit Number
3.1
Amended and Restated Certificate of Incorporation of Registrant
10-Q August 3, 2017 3.1
10.1*
Alaska Air Group Operational Performance Rewards Plan Description, adopted January 3, 2005; Amended February 14, 2017
10-Q May 5, 2017 10.1
10.2*
Alaska Air Group Performance Based Pay Plan, Amended and Restated January 18, 2017
10-Q May 5, 2017 10.2
31.1†
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10-Q
31.2†
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10-Q
32.1†
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10-Q
32.2†
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10-Q
101.INS†
XBRL Instance Document

101.SCH†
XBRL Taxonomy Extension Schema Document

101.CAL†
XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†
XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†
XBRL Taxonomy Extension Label Linkbase Document

101.PRE†
XBRL Taxonomy Extension Presentation Linkbase Document

† Filed herewith
* Indicates management contract or compensatory plan arrangement



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



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


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



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	2123
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	4342
ITEM 4.	CONTROLS AND PROCEDURES	43
PART II.	OTHER INFORMATION	44
ITEM 1.	LEGAL PROCEEDINGS	44
ITEM 1A.	RISK FACTORS	44
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	44
ITEM 4.	MINE SAFETY DISCLOSURES	44
ITEM 5.	OTHER INFORMATION	4445
ITEM 6.	EXHIBITS	45
	SIGNATURES	45



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

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

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

Total Assets	$	10,739	$	9,962



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

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

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

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



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



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



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



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



	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%


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


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


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


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


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



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

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



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