UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

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

For the transition period from to

Commission File Number 1-8957

ALASKA AIR GROUP, INC.


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


19300 International Boulevard,			Seattle,			WA			98188

Telephone:

(206)

392-5040


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer
(Do not check if a smaller reporting company)

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The registrant has ~~123,663,778~~124,481,793 common shares, par value $0.01, outstanding at ~~October~~April 30, ~~2020.~~2021.

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

ALASKA AIR GROUP, INC.

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2020~~MARCH 31, 2021

TABLE OF CONTENTS

As used in this Form 10-Q, the terms “Air Group,” the “Company,” “our,” “we” and "us" refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon” and together as our “airlines.”

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations.

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. For a discussion of our risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, ~~2019, and Item 1A. "Risk Factors" of Part II of this Form 10-Q.~~2020. Please consider our forward-looking statements in light of those risks as you read this report.

PART I


ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions)	(in millions)	September 30, 2020		December 31, 2019		(in millions)	March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,855	$	221	Cash and cash equivalents	$	1,076	$	1,370
Marketable securities	Marketable securities	1,904		1,300		Marketable securities	2,473		1,976
Total cash and marketable securities	Total cash and marketable securities	3,759		1,521		Total cash and marketable securities	3,549		3,346
Receivables - net	Receivables - net	321		323		Receivables - net	517		480
Inventories and supplies - net	Inventories and supplies - net	57		72		Inventories and supplies - net	57		57
Prepaid expenses, assets held-for-sale, and other current assets	Prepaid expenses, assets held-for-sale, and other current assets	328		121		Prepaid expenses, assets held-for-sale, and other current assets	161		123
Total Current Assets	Total Current Assets	4,465		2,037		Total Current Assets	4,284		4,006

Property and Equipment	Property and Equipment					Property and Equipment
Aircraft and other flight equipment	Aircraft and other flight equipment	7,851		8,549		Aircraft and other flight equipment	7,933		7,761
Other property and equipment	Other property and equipment	1,395		1,306		Other property and equipment	1,407		1,398
Deposits for future flight equipment	Deposits for future flight equipment	595		533		Deposits for future flight equipment	420		583
		9,841		10,388			9,760		9,742
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	3,460		3,486		Less accumulated depreciation and amortization	3,616		3,531
Total Property and Equipment - Net	Total Property and Equipment - Net	6,381		6,902		Total Property and Equipment - Net	6,144		6,211

Operating lease assets	Operating lease assets	1,516		1,711		Operating lease assets	1,423		1,400
Goodwill	Goodwill	1,943		1,943		Goodwill	1,943		1,943
Intangible assets - net	Intangible assets - net	107		122		Intangible assets - net	105		107
Other noncurrent assets	Other noncurrent assets	337		278		Other noncurrent assets	363		379
Other Assets	Other Assets	3,903		4,054		Other Assets	3,834		3,829

Total Assets	Total Assets	$	14,749	$	12,993	Total Assets	$	14,262	$	14,046

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions, except share amounts)	(in millions, except share amounts)	September 30, 2020		December 31, 2019		(in millions, except share amounts)	March 31, 2021		December 31, 2020
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	93	$	146	Accounts payable	$	133	$	108
Accrued wages, vacation and payroll taxes	Accrued wages, vacation and payroll taxes	541		470		Accrued wages, vacation and payroll taxes	456		527
Air traffic liability	Air traffic liability	1,071		900		Air traffic liability	1,297		1,073

Other accrued liabilities	Other accrued liabilities	406		431		Other accrued liabilities	541		424
Deferred revenue	Deferred revenue	663		750		Deferred revenue	818		733
Current portion of operating lease liabilities	Current portion of operating lease liabilities	283		269		Current portion of operating lease liabilities	271		290
Current portion of long-term debt	Current portion of long-term debt	1,150		235		Current portion of long-term debt	1,246		1,138
Total Current Liabilities	Total Current Liabilities	4,207		3,201		Total Current Liabilities	4,762		4,293

Long-Term Debt, Net of Current Portion	Long-Term Debt, Net of Current Portion	2,672		1,264		Long-Term Debt, Net of Current Portion	2,325		2,357

Noncurrent Liabilities	Noncurrent Liabilities					Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion	Long-term operating lease liabilities, net of current portion	1,320		1,439		Long-term operating lease liabilities, net of current portion	1,283		1,268
Deferred income taxes	Deferred income taxes	499		715		Deferred income taxes	365		407
Deferred revenue	Deferred revenue	1,520		1,240		Deferred revenue	1,507		1,544
Obligation for pension and postretirement medical benefits	Obligation for pension and postretirement medical benefits	601		571		Obligation for pension and postretirement medical benefits	663		665
Other liabilities	Other liabilities	476		232		Other liabilities	482		524
		4,416		4,197			4,300		4,408
Commitments and Contingencies	Commitments and Contingencies					Commitments and Contingencies	0		0
Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, NaN issued or outstanding	Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, NaN issued or outstanding	0		0		Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, NaN issued or outstanding	0		0
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2020 - 133,011,377 shares; 2019 - 131,812,173 shares, Outstanding: 2020 - 123,661,433 shares; 2019 - 123,000,307 shares		1		1
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2021 - 133,792,045 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 124,442,101 shares; 2020 - 124,217,590 shares						Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2021 - 133,792,045 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 124,442,101 shares; 2020 - 124,217,590 shares	1		1
Capital in excess of par value	Capital in excess of par value	366		305		Capital in excess of par value	409		391
Treasury stock (common), at cost: 2020 - 9,349,944 shares; 2019 - 8,811,866 shares		(674)		(643)
Treasury stock (common), at cost: 2021 - 9,349,944 shares; 2020 - 9,349,944 shares						Treasury stock (common), at cost: 2021 - 9,349,944 shares; 2020 - 9,349,944 shares	(674)		(674)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(450)		(465)		Accumulated other comprehensive loss	(494)		(494)
Retained earnings	Retained earnings	4,211		5,133		Retained earnings	3,633		3,764
		3,454		4,331			2,875		2,988
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	14,749	$	12,993	Total Liabilities and Shareholders' Equity	$	14,262	$	14,046

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in millions, except per share amounts)	(in millions, except per share amounts)	2020		2019		2020		2019		(in millions, except per share amounts)	2021		2020
Operating Revenues	Operating Revenues									Operating Revenues
Passenger revenue	Passenger revenue	$	572	$	2,211	2,362		6,038		Passenger revenue	$	659	$	1,481
Mileage Plan other revenue	Mileage Plan other revenue	84		118		266		346		Mileage Plan other revenue	94		109
Cargo and other	Cargo and other	45		60		130		169		Cargo and other	44		46
Total Operating Revenues	Total Operating Revenues	701		2,389		2,758		6,553		Total Operating Revenues	797		1,636
Operating Expenses	Operating Expenses									Operating Expenses
Wages and benefits	Wages and benefits	495		608		1,579		1,732		Wages and benefits	493		612
Variable incentive pay	Variable incentive pay	42		46		65		125		Variable incentive pay	33		7
Payroll support program grant wage offset		(398)		0		(760)		0
Payroll Support Program grant wage offset										Payroll Support Program grant wage offset	(411)		0
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	125		486		568		1,408		Aircraft fuel, including hedging gains and losses	203		384
Aircraft maintenance	Aircraft maintenance	84		106		244		341		Aircraft maintenance	81		115
Aircraft rent	Aircraft rent	74		82		229		247		Aircraft rent	62		81
Landing fees and other rentals	Landing fees and other rentals	109		143		323		388		Landing fees and other rentals	129		131
Contracted services	Contracted services	36		72		138		214		Contracted services	51		72
Selling expenses	Selling expenses	24		77		83		236		Selling expenses	33		55
Depreciation and amortization	Depreciation and amortization	105		106		320		317		Depreciation and amortization	97		108
Food and beverage service	Food and beverage service	14		57		70		159		Food and beverage service	23		49
Third-party regional carrier expense	Third-party regional carrier expense	29		42		92		125		Third-party regional carrier expense	30		37
Other	Other	89		137		310		411		Other	105		143
Special items - merger-related costs		1		5		5		39
Special items - impairment charges and other	Special items - impairment charges and other	121		0		350		0		Special items - impairment charges and other	18		160
Special items - restructuring charges	Special items - restructuring charges	322		0		322		0		Special items - restructuring charges	11		0
Special items - merger-related costs										Special items - merger-related costs	0		3
Total Operating Expenses	Total Operating Expenses	1,272		1,967		3,938		5,742		Total Operating Expenses	958		1,957
Operating Income (Loss)		(571)		422		(1,180)		811
Operating Loss										Operating Loss	(161)		(321)
Nonoperating Income (Expense)	Nonoperating Income (Expense)									Nonoperating Income (Expense)
Interest income	Interest income	7		11		23		31		Interest income	7		9
Interest expense	Interest expense	(34)		(18)		(64)		(60)		Interest expense	(32)		(13)
Interest capitalized	Interest capitalized	4		4		8		11		Interest capitalized	3		3
Other—net		5		(3)		16		(20)
Other - net										Other - net	10		5
Total Nonoperating Income (Expense)	Total Nonoperating Income (Expense)	(18)		(6)		(17)		(38)		Total Nonoperating Income (Expense)	(12)		4
Income (Loss) Before Income Tax		(589)		416		(1,197)		773
Income tax (benefit) expense		(158)		94		(320)		185
Net Income (Loss)		$	(431)	$	322	$	(877)	$	588
Loss Before Income Tax										Loss Before Income Tax	(173)		(317)
Income tax benefit										Income tax benefit	(42)		(85)
Net Loss										Net Loss	$	(131)	$	(232)

Basic Earnings (Loss) Per Share:		$	(3.49)	$	2.61	$	(7.12)	$	4.76
Diluted Earnings (Loss) Per Share:		$	(3.49)	$	2.60	$	(7.12)	$	4.74
Basic Loss Per Share:										Basic Loss Per Share:	$	(1.05)	$	(1.89)
Diluted Loss Per Share:										Diluted Loss Per Share:	$	(1.05)	$	(1.89)
Shares used for computation:	Shares used for computation:									Shares used for computation:
Basic	Basic	123.647		123.280		123.255		123.330		Basic	124.299		122.818
Diluted	Diluted	123.647		124.067		123.255		124.051		Diluted	124.299		122.818

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020
Net Income (Loss)		$	(431)	$	322	$	(877)	$	588
Net Loss										Net Loss	$	(131)	$	(232)

Other Comprehensive Income (Loss):	Other Comprehensive Income (Loss):									Other Comprehensive Income (Loss):
Related to marketable securities:	Related to marketable securities:									Related to marketable securities:
Unrealized holding gain (loss) arising during the period	Unrealized holding gain (loss) arising during the period	2		4		32		31		Unrealized holding gain (loss) arising during the period	(11)		(1)
Reclassification of (gain) loss into Other - net nonoperating income (expense)	Reclassification of (gain) loss into Other - net nonoperating income (expense)	(2)		(5)		(11)		(3)		Reclassification of (gain) loss into Other - net nonoperating income (expense)	(4)		(3)
Income tax effect	Income tax effect	0		0		(5)		(7)		Income tax effect	3		1
Total	Total	0		(1)		16		21		Total	(12)		(3)

Related to employee benefit plans:	Related to employee benefit plans:									Related to employee benefit plans:
Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income (expense)		7		8		22		24
Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income										Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income	8		7
Income tax effect	Income tax effect	(1)		(2)		(5)		(6)		Income tax effect	(2)		(2)
Total	Total	6		6		17		18		Total	6		5

Related to interest rate derivative instruments:	Related to interest rate derivative instruments:									Related to interest rate derivative instruments:
Unrealized holding gain (loss) arising during the period	Unrealized holding gain (loss) arising during the period	2		(5)		(25)		(17)		Unrealized holding gain (loss) arising during the period	8		(25)
Reclassification of loss into Aircraft rent	Reclassification of loss into Aircraft rent	1		1		2		2		Reclassification of loss into Aircraft rent	0		1
Income tax effect	Income tax effect	(1)		0		5		3		Income tax effect	(2)		5
Total	Total	2		(4)		(18)		(12)		Total	6		(19)

Other Comprehensive Income (Loss)	Other Comprehensive Income (Loss)	8		1		15		27		Other Comprehensive Income (Loss)	0		(17)

Comprehensive Income (Loss)		$	(423)	$	323	$	(862)	$	615
Comprehensive Loss										Comprehensive Loss	$	(131)	$	(249)

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)


(in millions)	(in millions)	Common Stock Outstanding	Common Stock		Capital in Excess of Par Value		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total		(in millions)	Common Stock Outstanding	Common Stock		Capital in Excess of Par Value		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balances at December 31, 2019		123.000	$	1	$	305	$	(643)	$	(465)	$	5,133	$	4,331
Balances at December 31, 2020															Balances at December 31, 2020	124.217	$	1	$	391	$	(674)	$	(494)	$	3,764	$	2,988
Net loss	Net loss	—	—		—		—		—		(232)		(232)		Net loss	—	—		—		—		—		(131)		(131)
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—		—		(17)		—		(17)		Other comprehensive income (loss)	—	—		—		—		0		—		0
Common stock repurchase		(0.538)	—		0		(31)		—		—		(31)
Stock-based compensation		—	—		9		—		—		—		9
Cash dividend declared ($0.375 per share)		—	—		—		—		—		(45)		(45)
Stock issued under stock plans		0.123	—		0		—		—		—		0
Balances at March 31, 2020		122.585	$	1	$	314	$	(674)	$	(482)	$	4,856	$	4,015
Net loss		—	—		—		—		—		(214)		(214)
Other comprehensive income (loss)		—	—		—		—		24		—		24

Stock-based compensation	Stock-based compensation	—	—		2		—		—		—		2		Stock-based compensation	—	—		12		—		—		—		12
CARES Act warrant issuance	CARES Act warrant issuance	—	—		7		—		—		—		7		CARES Act warrant issuance	—	—		8		—		—		—		8
Stock issued for employee stock purchase plan		1.000	—		27		—		—		—		27

Stock issued under stock plans	Stock issued under stock plans	0.054	—		—		—		—		—		0		Stock issued under stock plans	0.225	—		(2)		—		—		—		(2)
Balances at June 30, 2020		123.639	$	1	$	350	$	(674)	$	(458)	$	4,642	$	3,861
Net loss		—	—		—		—		—		(431)		(431)
Other comprehensive income (loss)		—	—		—		—		8		—		8
Stock-based compensation		—	—		7		—						7
CARES Act warrant issuance		—	—		9		—		—		—		9
Stock issued under stock plans		0.022	—		—		—		—		—		0
Balances at September 30, 2020		123.661	$	1	$	366	$	(674)	$	(450)	$	4,211	$	3,454

Balances at March 31, 2021															Balances at March 31, 2021	124.442	$	1	$	409	$	(674)	$	(494)	$	3,633	$	2,875


(in millions)	Common Stock Outstanding	Common Stock		Capital in Excess of Par Value		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balances at December 31, 2019	123.000	$	1	$	305	$	(643)	$	(465)	$	5,133	$	4,331

Net loss	—	—		—		—		—		(232)		(232)
Other comprehensive income (loss)	—	—		—		—		(17)		—		(17)
Common stock repurchase	(0.538)	—		—		(31)		—		—		(31)
Stock-based compensation	—	—		9		—		—		—		9
Cash dividend declared ($0.375 per share)	—	—				—		—		(45)		(45)

Stock issued under stock plans	0.123	—		—		—		—		—		0
Balance at March 31, 2020	122.585	$	1	$	314	$	(674)	$	(482)	$	4,856	$	4,015

(in millions) Common Stock Outstanding Common Stock Capital in Excess of Par Value Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Balances at December 31, 2018 123.194 $ 1 $ 232 $ (568) $ (448) $ 4,534 $ 3,751
Cumulative effect of accounting changes(a)
— — — — 0 3 3
Net income — — — — — 4 4
Other comprehensive income (loss) — — — — 15 — 15
Common stock repurchase (0.215) — 0 (13) — — (13)
Stock-based compensation — — 12 — — — 12
Cash dividend declared
($0.35 per share)
— — — — — (43) (43)
Stock issued for employee stock purchase plan 0.391 — 20 — — — 20
Stock issued under stock plans 0.134 — (3) — — — (3)
Balances at March 31, 2019 123.504 $ 1 $ 261 $ (581) $ (433) $ 4,498 $ 3,746
Net income — — — — — 262 262
Other comprehensive income (loss) — — — — 11 — 11
Common stock repurchase (0.194) — — (12) — — (12)
Stock-based compensation — — 9 — — — 9
Cash dividend declared
($0.35 per share)
— — — — — (43) (43)
Stock issued under stock plans 0.028 — 0 — — — 0
Balances at June 30, 2019 123.338 $ 1 $ 270 $ (593) $ (422) $ 4,717 $ 3,973
Net income — — — — — 322 322
Other comprehensive income (loss) — — — — 1 — 1
Common stock repurchase (0.465) — 0 (28) — — (28)
Stock-based compensation — — 7 — — — 7
Cash dividend declared
($0.35 per share) — — — — — (43) (43)
Stock issued for employee stock purchase plan 0.394 — 20 — — — 20
Stock issued under stock plans 0.011 — 0 — — — 0
Balances at September 30, 2019 123.278 $ 1 $ 297 $ (621) $ (421) $ 4,996 $ 4,252

~~(a)Represents the opening balance sheet adjustment recorded as a result of the adoption of the new lease accounting standard.~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		(in millions)	2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (Loss)		$	(877)	$	588
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net Loss						Net Loss	$	(131)	$	(232)
Adjustments to reconcile net loss to net cash provided by operating activities:						Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	320		317		Depreciation and amortization	97		108
Stock-based compensation and other	Stock-based compensation and other	14		20		Stock-based compensation and other	12		9
Special items - impairment charges and other	Special items - impairment charges and other	350		0		Special items - impairment charges and other	18		160
Special items - restructuring charges	Special items - restructuring charges	322		0		Special items - restructuring charges	11		0
Payroll support program grant wage offset		(760)		0
Changes in certain assets and liabilities:	Changes in certain assets and liabilities:					Changes in certain assets and liabilities:
Payroll support program grant funding		753		0
Changes in deferred tax provision	Changes in deferred tax provision	(220)		187		Changes in deferred tax provision	(39)		(44)
Increase in air traffic liability	Increase in air traffic liability	171		244		Increase in air traffic liability	224		210
Increase in deferred revenue	Increase in deferred revenue	193		97		Increase in deferred revenue	48		33
Pension contribution		0		(65)
Other - net	Other - net	(150)		(7)		Other - net	(73)		(211)
Net cash provided by operating activities	Net cash provided by operating activities	116		1,381		Net cash provided by operating activities	167		33
Cash flows used in investing activities:
Cash flows from investing activities:						Cash flows from investing activities:
Property and equipment additions:	Property and equipment additions:					Property and equipment additions:
Aircraft and aircraft purchase deposits	Aircraft and aircraft purchase deposits	(61)		(286)		Aircraft and aircraft purchase deposits	(3)		(57)
Other flight equipment	Other flight equipment	(49)		(125)		Other flight equipment	(11)		(35)
Other property and equipment	Other property and equipment	(94)		(116)		Other property and equipment	(13)		(27)
Total property and equipment additions, including capitalized interest	Total property and equipment additions, including capitalized interest	(204)		(527)		Total property and equipment additions, including capitalized interest	(27)		(119)
Purchases of marketable securities	Purchases of marketable securities	(2,092)		(1,446)		Purchases of marketable securities	(1,243)		(527)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	1,520		1,228		Sales and maturities of marketable securities	732		511
Other investing activities	Other investing activities	9		37		Other investing activities	(5)		8
Net cash used in investing activities	Net cash used in investing activities	(767)		(708)		Net cash used in investing activities	(543)		(127)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of debt	Proceeds from issuance of debt	2,581		356		Proceeds from issuance of debt	189		825
Common stock repurchases	Common stock repurchases	(31)		(752)		Common stock repurchases	0		(31)
Dividends paid	Dividends paid	(45)		(53)		Dividends paid	0		(45)
Long-term debt payments	Long-term debt payments	(238)		(129)		Long-term debt payments	(115)		(60)
Other financing activities	Other financing activities	19		40		Other financing activities	8		(5)
Net cash provided by (used in) financing activities		2,286		(538)
Net increase in cash, cash equivalents, and restricted cash		1,635		135
Cash, cash equivalents, and restricted cash at beginning of year		232		114
Net cash provided by financing activities						Net cash provided by financing activities	82		684
Net increase (decrease) in cash, cash equivalents, and restricted cash						Net increase (decrease) in cash, cash equivalents, and restricted cash	(294)		590
Cash, cash equivalents, and restricted cash at beginning of period						Cash, cash equivalents, and restricted cash at beginning of period	1,386		232
Cash, cash equivalents, and restricted cash at end of the period	Cash, cash equivalents, and restricted cash at end of the period	$	1,867	$	249	Cash, cash equivalents, and restricted cash at end of the period	$	1,092	$	822

Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest (net of amount capitalized)	Interest (net of amount capitalized)	$	38	$	48	Interest (net of amount capitalized)	$	50	$	9
Income taxes	Income taxes	0		2		Income taxes	0		0

Reconciliation of cash, cash equivalents, and restricted cash at end of the period	Reconciliation of cash, cash equivalents, and restricted cash at end of the period					Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents	Cash and cash equivalents	$	1,855	$	237	Cash and cash equivalents	$	1,076	$	811
Restricted cash included in Prepaid expenses, assets held-for-sale and other current assets		12		12
Restricted cash included in Prepaid expenses, assets held-for-sale, and other current assets						Restricted cash included in Prepaid expenses, assets held-for-sale, and other current assets	16		11
Total cash, cash equivalents, and restricted cash at end of the period	Total cash, cash equivalents, and restricted cash at end of the period	$	1,867	$	249	Total cash, cash equivalents, and restricted cash at end of the period	$	1,092	$	822

109

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 and Horizon. The condensed consolidated financial statements also include McGee Air Services (McGee), a ground services subsidiary of Alaska. The Company conducts substantially all of its operations through these subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. It should be read in conjunction with the consolidated financial statements and accompanying notes in the Form 10-K for the year ended December 31, ~~2019.~~2020. 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, 2020~~March 31, 2021 and the results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. Such adjustments were of a normal recurring nature.

In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses, including impairment charges. Due to the impacts of the ~~novel~~ coronavirus (COVID-19) pandemic on the Company's business, these estimates and assumptions require more judgment than they would otherwise given the uncertainty of the future demand for air travel, among other considerations. Further, due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment and other factors, operating results for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of operating results for the entire year.

~~Recently Adopted Accounting Pronouncement~~

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The ASU requires the use of an "expected credit loss model" on certain financial instruments. The ASU also amends the impairment model for available-for-sale debt securities, and requires the estimation of credit losses to be recorded as allowances instead of reductions to amortized cost. The ASU was effective for the Company beginning January 1, 2020, and was adopted prospectively, but it did not have a significant impact on the Company's financial statements and disclosures.

NOTE 2. COVID-19 PANDEMIC

The public health and economic ~~crises~~crisis resulting from the outbreak of COVID-19 ~~beginning~~ in the first quarter of 2020 ~~has had an unprecedented~~continues to have a significant impact on the Company. Travel restrictions, event cancellations and social distancing guidelines implemented throughout the country drove significant declines in demand beginning in February, and adversely impacted revenues beginning in March. Although the ~~Company has experienced several months~~relaxation of ~~modest improvement in~~restrictions by state and local governments and the rollout of vaccination programs have allowed for the return of some demand, ~~traffic remains well~~passenger enplanements remain significantly below ~~2019~~pre-pandemic levels. ~~It is uncertain when the impacts of the crisis may resolve and when demand may return~~As a result, we continue to ~~normal levels.~~fly far less capacity than normal.

~~In response to the COVID-19 pandemic,~~Beginning in 2020, the Company implemented ~~a "Peace-of-Mind" waiver, which allows travelers to book tickets~~various cost-saving initiatives, including permanently parking aircraft, restructuring the workforce through early-out and incentive leave programs, and obtaining funding available under programs offered by the U.S. Treasury. The impacts of these programs for ~~travel for a specified period of time that can be changed or canceled without incurring change fees. In~~ the ~~third quarter, the waiver was extended to cover all ticketed travel purchased through December~~three months ended March 31, ~~2020, and beginning in~~ 2021 all change fees will be eliminated for first class and main cabin fares. Cancellations and postponement of travel exceeded new bookings in March and April, and had a material impact on second and third quarter passenger revenues, air traffic liability, and cash position. Refer to Note 3 for further discussion.are described below.

Lease Return Costs

When 40 leased Aircraft were removed from operating service in 2020, we recorded an estimate of the expected future lease return costs for the aircraft. Lease return costs include the write off of associated maintenance deposits, as the Company no longer expects to perform maintenance events covered by those deposits. The ~~Company has taken decisive action~~total net charge recorded in 2020 for aircraft that were permanently parked amounted to ~~reduce costs and preserve cash and liquidity.~~$209 million. In the first quarter of 2021, the Company implemented a company-wide hiring freeze, reduced salaries of senior management and hours for management employees, suspended annual pay increases and solicited voluntary leaves of absence. In addition to these payroll saving measures, the Company has actively negotiatedrecorded an additional $18 million in incremental costs associated with vendor partners to reduce contractual minimums and spending in line with the reduction in demand. In the third quarter, management made the difficult decision to reduce the Company's workforce through voluntary and involuntary leaves.

~~With demand dramatically depressed, the Company has significantly reduced its planned flying capacity. As a result, many~~leased aircraft that have been parked or removed from service. As of September 30, 2020, 64 mainline aircraft were temporarily grounded. The Company made the decision in the first quarter of 2020 to permanently remove 12 Airbus aircraft from the operating fleet. In the third quarter of 2020, an additional 8 Airbus aircraft were permanentlyretired and removed from the operating ~~fleet. As of September 30, 2020, all operating regional aircraft were in service.~~

~~Valuation of long-lived assets~~

~~The Company reviews its long-lived assets for impairment whenever events or changes indicate that the total carrying amount of an asset or asset group may~~fleet but not ~~be recoverable.~~

~~To determine if impairment exists, a recoverability test is performed comparing the sum of estimated undiscounted future cash flows expected to be directly generated by the assets~~yet returned to the ~~asset carrying value. Assets are grouped at the individual fleet level,~~lessor, which is the lowest level for which identifiable cash flows are available. The Company developed estimates of future cash flows utilizing historical results, adjusted for the current operating environment, including the impact of parked aircraft.

Given the temporary and permanent parking of certain aircraft described above, the Company performed impairment tests on certain long-lived assets in each of the quarters of 2020. All individual fleets passed the recoverability test, except for the Q400 fleet and the permanently parked Airbus aircraft, which did not pass in the first and third quarters of 2020.

In the first quarter, the Company recorded an impairment charge of $83 million for the 12 permanently parked Airbus aircraft, which was comprised of operating lease right of use assets, estimable return costs, and related leasehold improvements. In the second quarter, the Company identified additional estimable return costs relating to those permanently parked aircraft, and recorded an additional $70 million charge.

Also in the first quarter, the Company recorded an impairment charge of $58 million reflecting the amount for which carrying value exceeded fair value of the Q400 fleet. The Company also recorded additionalclassified as Special items - impairment charges ~~relating to 2 non-operating Q400 aircraft, which remain parked~~ and ~~held-for-sale, in the first quarter of 2020.~~

In the third quarter, the Company determined that ten owned Airbus A320 aircraft were impaired, as those aircraft have been specifically identified for retirement prior to the end of their expected useful lives. The Company decided to permanently park eight of these aircraft as of September 30, 2020. As such, the Company recorded an impairment charge of $121 million, representing the amount by which carrying value exceeded fair value for the aircraft and related capital improvements and spare parts inventory. The adjusted net book value of $219 million for the 8 aircraft that have been permanently parked and the 2 Q400 aircraft mentioned above has been transferred to held-for-sale assets in Other current assetsother on the condensed consolidated ~~balance sheet.~~

~~A summary~~statement of operations. The lease return cost estimates are based on the Company's best estimate of costs to return aircraft as of the ~~impairment charges recorded for aircraft and other flight equipment for the nine months ended September 30, 2020 is as follows (in millions):~~

Airbus Aircraft Q400 Aircraft Total Impairment
Aircraft and other flight equipment, net $ 132 $ 58 $ 190
Operating lease assets 62 0 62
Inventory and supplies - net 2 0 2
Prepaid expenses and other current assets 0 3 3
Other accrued liabilities 78 0 78
Total impairment charges - Long-lived assets $ 274 $ 61 $ 335

~~The Company will continue to evaluate the need for further impairment~~date of ~~long-lived assets as expectations of future demand, market conditions and fleet decisions evolve.~~

~~Valuation of intangible assets and goodwill~~

The Company reviews definite- and indefinite-lived intangible assets and goodwill for impairment on an annual basis in the fourth quarter, or more frequently should events or circumstances indicate that an impairment may exist.

Given the strain in the general economic environment and a significant decline in Alaska Air Group market capitalization, the Company performed impairment tests on all three asset types at the end of each quarter in 2020. As a result of these analyses, indefinite-lived intangible assets and goodwill were deemed recoverable, and no impairment charges were recorded. Of the company’s definite-lived intangibles, leased gates at Dallas-Love Field (DAL Gates) were deemed not recoverable and an impairment charge of $10 million was recorded in the first quarter. No additional impairment charges were identified for definite-lived intangibles as a result of the second and third quarter impairment tests.this filing.

Workforce restructuring

The Company ~~expects~~continues to expect that demand will remain ~~depressed into~~below pre-pandemic levels in 2021, ~~and expects to rebuild~~but will continue rebuilding toward 2019 capacity ~~levels to approximately 80% by summer 2021. Accordingly,~~levels. In response, the Company reduced its workforce in ~~the third quarter of~~ 2020 to better align with the expected size of the business. To mitigate the need for involuntary furloughs, various early-out and voluntary leave programs were made available to all frontline work groups, in addition to incentive leave programs made available to Alaska pilots and mechanics. Through these programs over 600 employees took permanent early-outs, and over 3,300 employees took voluntary or incentive leaves. As of March 31, 2021, approximately 2,800 employees remain on a result of the participation in these mitigation programs, the involuntary furloughs that became effective October 1, 2020 were limited to approximately 400 employees. The Company recalled approximately 220 flight attendants on November 1, 2020. In addition to these furloughs, the Company permanently eliminated approximately 300 non-union management positions.voluntary leave program.

AsIn 2020, as a result of these programs, the Company recorded ~~expense of $322~~$220 million ~~to Special items - restructuring charges~~ in ~~the condensed consolidated statement of operations in the third quarter of 2020. The charge is primarily comprised of wages~~wage expense for those pilots and mechanics on incentive leaves, ongoing medical benefit coverage and lump-sum termination payments. In the first quarter of 2021, the

~~Other considerations~~

~~The~~ Company ~~evaluated outstanding receivable balances for risk~~refined capacity expectations and training schedules, and delayed certain recalls to a future period beyond what was anticipated in the accrual at December 31, 2020. As a result, an additional expense of non-payment. The Company identified a $5 million receivable from a vendor that filed for bankruptcy during the first quarter. The Company expects to file a bankruptcy claim but, as the note is unsecured, management determined that collectability is not probable. Therefore, the full $5$11 million was ~~reserved and charged to~~recorded as Special items - ~~impairment~~restructuring charges ~~and other~~ in the condensed consolidated statement of operations induring the ~~first quarter.~~three months ended March 31, 2021.

~~For the three and nine months ended September 30, 2020, the Company concluded that the use of~~The table below presents a ~~year-to-date effective tax rate estimate was more appropriate than the annual effective tax rate method as estimates~~roll forward of the ~~Company's full-year tax loss are not reliable at this time given the uncertainty of the travel demand environment.~~outstanding voluntary leave liability (in millions):


	Three Months Ended March 31, 2021
Total voluntary leave liability balance at January 1	$	127
Cash payments	(47)
Charges and adjustments	11
Total voluntary leave liability balance at March 31	$	91

~~Although it~~The outstanding accrual is ~~not certain when~~based on the ~~impacts~~Company's best estimate of ~~COVID-19~~capacity expectations and training schedules for 2021 as of the date of this filing. The Company will ~~subside~~make the majority of the remaining cash payments associated with this liability in 2021. The balance is reflected in accrued wages, benefits and ~~demand for air travel will return,~~payroll taxes on the ~~Company has implemented meaningful plans to reduce expenses, build liquidity and preserve cash. At September 30, 2020, given the~~condensed consolidated balance of cash, cash equivalents and marketable securities, as well as anticipated access to liquidity and cash flows from future operations, the Company expects it will meet all cash obligations, as well as remain in compliance with the financial debt covenants in its existing financing arrangements, for the next 12 months. Refer to Note 5. Long-Term Debt for further information regarding liquidity obtained in response to the COVID-19 crisis.sheet.

CARES Act Funding

During the ~~second~~first quarter of 2021, Alaska, Horizon, and McGee finalized agreements with the U.S. Department of the Treasury (the Treasury) through an extension of the ~~payroll support program~~Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) ~~Act.~~Act, made available under the Consolidated Appropriations Act, 2021 (PSP 2). Under PSP 2 and the ~~PSP and associated~~supporting agreements, Alaska and Horizon received ~~$992~~total funds of approximately $539 million in the first quarter of 2021. Subsequent to March 31, 2021, Alaska and Horizon received notification of an additional $80 million in funds made available under PSP 2. Those additional funds were received on April 29, 2021.

On April 29, 2021, Alaska, Horizon and McGee finalized additional agreements with the Treasury under a third round of the PSP, made available under the American Rescue Plan Act of 2021 (PSP 3). Under PSP 3 and the supporting agreements, Alaska, Horizon, and McGee expect to receive total funds of approximately $584 million in the second ~~quarter. In the third~~ quarter of ~~2020, Alaska~~2021.

Of the amounts received during the three months ended March 31, 2021, $136 million represented unsecured debt and ~~Horizon~~was recorded at par, and $8 million represented warrants recorded at fair value using a Black-Scholes model. Both were ~~informed by~~recorded on the ~~Treasury~~condensed consolidated balance sheet. The remaining $403 million was recorded as grant proceeds. These amounts are inclusive of ~~$29~~additional funding of $8 million ~~in additional funds~~made available to McGee under the ~~PSP. Similarly, McGee entered into~~first installment of PSP program (PSP 1). The grant is recorded as an ~~agreement~~offset to ~~receive~~wages, salaries and benefits as eligible expenses are incurred. During the three months ended March 31, 2021, the Company recognized $411 million of the PSP grant proceeds as a ~~total of $30~~wage offset. Included within this $411 million ~~which was received~~is approximately $8 million for employee retention credits as in ~~three installments~~the CARES Act. The Company expects to record any remaining wage offsets in the second ~~and third quarters.~~quarter of 2021.

Total funds ~~of approximately $1.1 billion~~contracted from the Treasury under the three Payroll Support Programs are allocated as follows (in millions):


	Grants		Loans		Warrants		Total Proceeds
PSP 1	$	757	$	293	$	9	$	1,059
PSP 2	457		159		9		625
PSP 3(a)	431		147		6		584
Total	$	1,645	$	599	$	24	$	2,268

(a) - The Company has reached an agreement for total proceeds to be received under PSP 3, however, the allocation of those proceeds are subject to change based on the final Black-Scholes valuation at the funding date.

Funds are exclusively used ~~exclusively toward~~for continuing to pay employee salaries, wages and benefits. Upon receipt of the funds ~~the Company is subject to various~~issued under PSP 3, certain conditions ~~including,~~and restrictions were extended. These conditions include, but are not limited to, refraining from conducting involuntary furloughs or reducing employee pay rates ~~of pay~~ through September 30, ~~2020~~2021 and placing limits on executive ~~compensation. Other conditions~~compensation and severance through April 1, 2023. Alaska Air Group also ~~prohibit~~agreed to continue the ~~Company from repurchasing common stock~~suspension of dividends and ~~from paying dividends~~share repurchases until September 30, ~~2021, and required the Company to continue to maintain essential air service as directed by the U.S. Department of Transportation through September 30, 2020.~~

The funds received took the form of debt, warrants and a grant. The unsecured debt portion of $290 million was recorded at par, and warrants of $8 million were recorded on the condensed consolidated balance sheet at fair value determined using the Black-Scholes model. The residual amount of $753 million was recorded as grant proceeds. The grant will be recognized into earnings as eligible wages, salaries and benefits are incurred. During the three and nine months ended September 30, 2020, the Company recognized $398 million and $760 million of the PSP grant proceeds as a wage offset. Included within the third quarter total offset is approximately $17 million in credits for employer taxes, as stipulated in the CARES Act. The Company expects to record an additional $10 million in wage offset in the fourth quarter.

In the third quarter of 2020, the Company reached an agreement with the Treasury to participate in the CARES Act loan program. The loan agreement provides for a secured term loan facility, which allows Alaska to borrow up to $1.3 billion. In October 2020, the amount of the loan available was increased to $1.9 billion. In September the Company borrowed $135 million under the loan facility. Refer to Note 5. Long-Term Debt and Note 8. Shareholders' Equity for further details regarding terms of the CARES loan agreement.2022.

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents the primary source of the Company's revenue. Also included in Passenger revenue are passenger ancillary revenues such as bag fees, on-board food and beverage, ticket change fees, and certain revenue from the frequent flyer program. In ~~the third quarter of~~ 2020, the Company ~~announced beginning on January 1, 2021 it would no longer collect~~eliminated ticket change fees indefinitely from ~~those guests traveling on~~its main cabin orand first class fares. Mileage Plan other revenue includes brand and marketing revenue from ~~the Company's~~our 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 9. The ~~details~~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,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Passenger ticket revenue, including ticket breakage and net of taxes and fees	Passenger ticket revenue, including ticket breakage and net of taxes and fees	$	459	$	1,868	$	1,894	$	5,099	Passenger ticket revenue, including ticket breakage and net of taxes and fees	$	525	$	1,213
Passenger ancillary revenue	Passenger ancillary revenue	49		157		196		428		Passenger ancillary revenue	50		116
Mileage Plan passenger revenue	Mileage Plan passenger revenue	64		186		272		511		Mileage Plan passenger revenue	84		152
Total Passenger revenue	Total Passenger revenue	$	572	$	2,211	$	2,362	$	6,038	Total Passenger revenue	$	659	$	1,481

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,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Passenger revenue	Passenger revenue	$	64	$	186	$	272	$	511	Passenger revenue	$	84	$	152
Mileage Plan other revenue	Mileage Plan other revenue	84		118		266		346		Mileage Plan other revenue	94		109
Total Mileage Plan revenue	Total Mileage Plan revenue	$	148	$	304	$	538	$	857	Total Mileage Plan revenue	$	178	$	261

Cargo and Other

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Cargo revenue	Cargo revenue	$	31	$	36	$	83	$	104	Cargo revenue	$	27	$	24
Other revenue	Other revenue	14		24		47		65		Other revenue	17		22
Total Cargo and other revenue	Total Cargo and other revenue	$	45	$	60	$	130	$	169	Total Cargo and other revenue	$	44	$	46

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $~~484~~136 million and ~~$582~~$489 million from the prior year-end air traffic liability balance for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

Given the reduction in demand for air travel stemming from the COVID-19 pandemic, advance bookings and associated cash receipts have been significantly depressed. The Company also experienced elevated cancellations beginning in March 2020 which led to cash refunds or the issuance of credits for future travel. ~~Since~~At March ~~the Company has issued cash refunds of approximately $475 million and credits for future travel of $850 million. At September 30, 2020,~~31, 2021, such credits, which are included in the air traffic liability balance, totaled ~~$617~~$484 million, net of breakage. In April ~~2020,~~2021, the Company announced updated expiration terms for these credits, extending to ~~July 2021. At this time,~~December 31, 2021 for possible travel through November 30, 2022. Given the ~~Company is unable to estimate how and when the air traffic liability will be recognized in earnings given~~ ongoing uncertainty ~~around~~in the return inof demand for air ~~travel.~~travel, assumptions about breakage of these credits could change in future periods.

Mileage PlanTM assets and liabilities

The Company records a receivable for amounts due from the bank partner and from other partners as mileage credits are sold until the payments are collected. The Company had ~~$45~~$52 million of such receivables as of ~~September 30, 2020~~March 31, 2021 and ~~$105~~$48 million as of December 31, ~~2019. Consistent with~~2020. Given the ~~significant cancellation activity outlined above, the Company experienced incremental redeposits in the third quarter. Given the~~ongoing uncertainty around the return in demand for air travel, the ~~Company is unable to determine how and when~~timing of recognition of mileage credits ~~will be recognized in earnings.~~may differ from current assumptions.

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


		Nine Months Ended September 30,						Three Months Ended March 31,
			2020		2019				2021		2020
Total Deferred Revenue balance at January 1	Total Deferred Revenue balance at January 1		$	1,990	$	1,874	Total Deferred Revenue balance at January 1		$	2,277	$	1,990
Travel miles and companion certificate redemption - Passenger revenue	Travel miles and companion certificate redemption - Passenger revenue		(272)		(511)		Travel miles and companion certificate redemption - Passenger revenue		(84)		(152)
Miles redeemed on partner airlines - Other revenue	Miles redeemed on partner airlines - Other revenue		(21)		(84)		Miles redeemed on partner airlines - Other revenue		(4)		(22)
Increase in liability for mileage credits issued	Increase in liability for mileage credits issued		486		692		Increase in liability for mileage credits issued		136		207
Total Deferred Revenue balance at Sept 30			$	2,183	$	1,971
Total Deferred Revenue balance at March 31							Total Deferred Revenue balance at March 31		$	2,325	$	2,023

NOTE 4. FAIR VALUE MEASUREMENTS

In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used. Level 1 refers to fair values based on quoted prices in active markets for identical assets or liabilities. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 refers to fair values estimated using significant unobservable inputs.

Fair Value of Financial Instruments on a Recurring Basis

As of ~~September 30, 2020,~~March 31, 2021, total cost basis for all marketable securities was ~~$1.9~~$2.5 billion. There were no significant differences between the cost basis and fair value of any individual class of marketable securities.

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


		September 30, 2020						December 31, 2019							March 31, 2021						December 31, 2020
		Level 1		Level 2		Total		Level 1		Level 2		Total			Level 1		Level 2		Total		Level 1		Level 2		Total

Assets	Assets													Assets
Marketable securities	Marketable securities													Marketable securities
U.S. government and agency securities	U.S. government and agency securities	$	479	$	0	$	479	$	330	$	0	$	330	U.S. government and agency securities	$	301	$	0	$	301	$	407	$	0	$	407
Equity mutual funds	Equity mutual funds	6		0		6		6		0		6		Equity mutual funds	7		0		7		7		0		7
Foreign government bonds	Foreign government bonds	0		20		20		0		31		31		Foreign government bonds	0		19		19		0		20		20
Asset-backed securities	Asset-backed securities	0		232		232		0		211		211		Asset-backed securities	0		284		284		0		224		224
Mortgage-backed securities	Mortgage-backed securities	0		262		262		0		176		176		Mortgage-backed securities	0		293		293		0		290		290
Corporate notes and bonds	Corporate notes and bonds	0		859		859		0		523		523		Corporate notes and bonds	0		1,515		1,515		0		978		978
Municipal securities	Municipal securities	0		46		46		0		23		23		Municipal securities	0		54		54		0		50		50
Total Marketable securities	Total Marketable securities	485		1,419		1,904		336		964		1,300		Total Marketable securities	308		2,165		2,473		414		1,562		1,976
Derivative instruments	Derivative instruments													Derivative instruments
Fuel hedge—call options		0		7		7		0		11		11
Interest rate swap agreements		0		0		0		0		3		3
Fuel hedge - call options														Fuel hedge - call options	0		41		41		0		15		15

Total Assets	Total Assets	$	485	$	1,426	$	1,911	$	336	$	978	$	1,314	Total Assets	$	308	$	2,206	$	2,514	$	414	$	1,577	$	1,991

Liabilities	Liabilities													Liabilities
Derivative instruments	Derivative instruments													Derivative instruments

Interest rate swap agreements	Interest rate swap agreements	0		(29)		(29)		0		(10)		(10)		Interest rate swap agreements	0		(18)		(18)		0		(25)		(25)
Total Liabilities	Total Liabilities	$	0	$	(29)	$	(29)	$	0	$	(10)	$	(10)	Total Liabilities	$	0	$	(18)	$	(18)	$	0	$	(25)	$	(25)

The Company uses both the market and income approach to determine the fair value of marketable securities. U.S. government securities and equity mutual funds are Level 1 as the fair value is based on quoted prices in active markets. Foreign government bonds, asset-backed securities, mortgage-backed securities, corporate notes and bonds, and municipal securities are Level 2 as

the fair value is based on standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.

The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in active markets or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts isare determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR-based interest forward rates at period end multiplied by the total notional value.

Activity and Maturities for Marketable Securities

Unrealized losses from marketable securities are primarily attributable to changes in interest rates. Management does not believe any unrealized losses are the result of expected credit losses based on its evaluation of available information as of ~~September 30, 2020.~~March 31, 2021.

Maturities for marketable securities (in millions):


September 30, 2020		Cost Basis		Fair Value
March 31, 2021						March 31, 2021	Cost Basis		Fair Value
Due in one year or less	Due in one year or less	$	702	$	704	Due in one year or less	$	1,158	$	1,159
Due after one year through five years	Due after one year through five years	1,108		1,139		Due after one year through five years	1,231		1,246
Due after five years through 10 years	Due after five years through 10 years	54		55		Due after five years through 10 years	62		61

Total	Total	$	1,864	$	1,898	Total	$	2,451	$	2,466

Fair Value of Other Financial Instruments

The Company uses the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.

Cash, Cash Equivalents, and Restricted Cash: Cash equivalents consist of highly liquid investments with original maturities of three months or less, such as money market funds, commercial paper and certificates of deposit. They are carried at cost, which approximates fair value.

The Company's restricted cash balances are primarily used to guarantee various letters of credit, self-insurance programs or other contractual rights. Restricted cash consists of highly liquid securities with original maturities of three months or less. They are carried at cost, which approximates fair value.

Debt: Debt assumed in the acquisition of Virgin America was subject to a non-recurring fair valuation adjustment as part of purchase price accounting. The adjustment is amortized over the life of the associated debt. All other fixed-rate debt is carried at cost. To estimate the fair value of all fixed-rate debt as of ~~September 30, 2020,~~March 31, 2021, the Company uses the income approach by discounting cash flows or estimation using quoted market prices, utilizing borrowing rates for comparable debt over the remaining life of the outstanding debt. The estimated fair value of the fixed-rate Enhanced Equipment Trust Certificate debt is Level 2, ~~except for $732~~as it is estimated using observable inputs, while the estimated fair value of $612 million ~~which~~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 on the condensed consolidated balance sheet and the estimated fair value of long-term fixed-rate debt is as follows (in millions):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Fixed-rate debt at cost		$	1,889	$	473
Non-recurring purchase price accounting fair value adjustment		2		2

Total fixed-rate debt	Total fixed-rate debt	$	1,891	$	475	Total fixed-rate debt	$	1,728	$	1,662

Estimated fair value	Estimated fair value	$	1,960	$	483	Estimated fair value	$	1,839	$	1,778

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. ~~Refer to Note 2 for discussion regarding impairment charges recorded during the three and nine months ended September 30, 2020.~~ No material ~~impairment charges~~impairments were recorded during the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2021.

NOTE 5. LONG-TERM DEBT

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


		September 30, 2020			December 31, 2019				March 31, 2021			December 31, 2020
Fixed-rate notes payable due through 2029	Fixed-rate notes payable due through 2029	$	427		$	475		Fixed-rate notes payable due through 2029	$	186		$	198
Fixed-rate PSP notes payable due through 2030		290			0
Fixed-rate PSP notes payable due through 2031								Fixed-rate PSP notes payable due through 2031	426			290
Fixed-rate EETC payable due through 2025 & 2027	Fixed-rate EETC payable due through 2025 & 2027	1,174			0			Fixed-rate EETC payable due through 2025 & 2027	1,116			1,174
Variable-rate notes payable due through 2029	Variable-rate notes payable due through 2029	1,966			1,032			Variable-rate notes payable due through 2029	1,876			1,866
Less debt issuance costs and unamortized debt discount	Less debt issuance costs and unamortized debt discount	(35)			(8)			Less debt issuance costs and unamortized debt discount	(33)			(33)
Total debt	Total debt	3,822			1,499			Total debt	3,571			3,495
Less current portion	Less current portion	1,150			235			Less current portion	1,246			1,138
Long-term debt, less current portion	Long-term debt, less current portion	$	2,672		$	1,264		Long-term debt, less current portion	$	2,325		$	2,357

Weighted-average fixed-interest rate	Weighted-average fixed-interest rate	4.3		%	3.3		%	Weighted-average fixed-interest rate	4.0		%	4.3		%
Weighted-average variable-interest rate	Weighted-average variable-interest rate	1.9		%	2.9		%	Weighted-average variable-interest rate	1.7		%	1.9		%

Approximately ~~$642~~$591 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at ~~September 30, 2020.~~March 31, 2021, effective weighted-average interest rate for the full debt portfolio to 3.1%.

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company ~~obtained proceeds from issuance~~issued $189 million of debt, comprising of ~~$2.6 billion from multiple lenders and sources. New proceeds are comprised~~$136 million of ~~$1.2 billion in Enhanced Equipment Trust Certificates (EETC), $589 million from secured debt financing backed by a total of 32 aircraft, $290 million in an~~ unsecured ~~loan~~loans from the PSP and ~~$135~~a $54 million ~~from the CARES Act loan program. Also included in proceeds from~~ issuance of ~~debt is $400 million drawn on existing lines of credit. Details around these issuances are more fully described below. Issuances of debt are~~debt. Debt proceeds were offset by ~~$238~~$115 million in scheduled debt payments.

~~In the third quarter of 2020, the Company obtained $1.2 billion in private funding through the issuance of Enhanced Equipment Trust Certificates (EETC).~~ The ~~EETC are collateralized by 42 Boeing 737 aircraft and 19 Embraer E175 aircraft. Principal and interest payments are due semiannually, beginning on February 15, 2021.~~

~~The $290~~$426 million PSP ~~note is an~~notes are unsecured senior term ~~loan~~loans with a 10-year term, bearing an interest rate of 1% in years 1 through 5, and an interest rate equal to the Secured Overnight Financing Rate (SOFR) plus 2% in years 6 through 10. The ~~loan is~~PSP notes are prepayable at par at any time. Alaska and Horizon PSP proceeds were deposited into an account which will be drawn down over time for payroll expenses. That account and the balance of the proceeds will serve as the only collateral for the loan.without penalty.

CARES Act ~~Loan Program~~

In ~~the third quarter of~~ 2020, the Company finalized an agreement with the Treasury to obtain up to ~~$1.3~~$1.9 billion via a secured term loan facility. ~~In October 2020, the Company was informed by the Treasury that the total loan available would increase to $1.9 billion. Following the October upsize, obligations of the Company~~Obligations under the loan agreement are secured by assets related to, and revenues generated by, Alaska's Mileage PlanTM frequent flyer program, as well as by 3430 aircraft and 15 spare engines.

As of ~~September 30, 2020,~~March 31, 2021, the Company has drawn $135 million available under the agreement, and may, at its option, borrow additional amounts in up to two subsequent borrowings until ~~March 31, 2021, after a required initial draw of 10%.~~May 28, 2021. All proceeds drawn must be used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the loan agreement and the applicable provisions of the CARES Act.

In conjunction with the initial draw, the Company granted the Treasury 427,080 warrants to purchase ALK common stock at a strike price of $31.61. The value of the warrants was estimated using a Black-Scholes option pricing model, and the relative fair value of the warrants of $6 million was recorded in stockholders' equity, with an offsetting debt discount to the CARES Act Loan issuance.

Debt Maturity

At ~~September 30, 2020~~March 31, 2021 long-term debt principal payments for the next five years and thereafter are as follows (in millions):


		Total			Total
Remainder of 2020		$	73
2021		1,201
Remainder of 2021				Remainder of 2021	$	659
2022	2022	393		2022	796
2023	2023	357		2023	334
2024	2024	265		2024	240
2025				2025	396
Thereafter	Thereafter	1,568		Thereafter	1,179
Total	Total	$	3,857	Total	$	3,604

Bank Lines of Credit

The Company has 3 credit facilities with ~~availability~~capacity totaling $461 million as of ~~September 30, 2020. All 3~~March 31, 2021. One of the credit facilities ~~have variable interest rates based on LIBOR plus a specified margin. One credit facility~~ for ~~$250 million expires in June 2021 and is secured by aircraft. A second credit facility, which was renegotiated in September 2020, resulting in decreased capacity from $150 million to~~ $120 million expires in March 2022 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. The second credit facility for $250 million expires in June 2021 and is secured by aircraft. These two facilities have variable interest rates based on LIBOR plus a specified margin. A third credit facility for $91 million expires in June 2021 ~~with a mechanism for annual renewal,~~ and is secured by ~~aircraft.~~aircraft..

~~During the nine months ended September 30, 2020, the Company drew $400 million on the first 2 existing facilities, of which a total of $37 million has since been repaid.~~ The Company has an outstanding balance of $363 million ~~from~~on the first ~~two~~and second facilities, ~~and the outstanding balance~~which is classified as short-term on the condensed consolidated balance sheet. Subsequent to quarter-end, the Company issued notices to repay the entire outstanding balance. The Company also has secured letters of credit against the ~~$91 million~~third facility. All 3 credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. The Company was in compliance with this covenant at ~~September 30, 2020.~~March 31, 2021.

NOTE 6. EMPLOYEE BENEFIT PLANS

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Service cost	Service cost	$	11	$	11	$	37	$	32	Service cost	$	13	$	13
Pension expense included in Wages and benefits	Pension expense included in Wages and benefits	11		11		37		32		Pension expense included in Wages and benefits	13		13

Interest cost	Interest cost	19		23		57		67		Interest cost	14		19
Expected return on assets	Expected return on assets	(28)		(24)		(83)		(71)		Expected return on assets	(31)		(28)
Amortization of prior service cost (credit)		(1)		(1)		(1)		(1)

Recognized actuarial loss	Recognized actuarial loss	9		9		26		27		Recognized actuarial loss	9		9
Pension expense included in Nonoperating Income (Expense)	Pension expense included in Nonoperating Income (Expense)	$	(1)	$	7	$	(1)	$	22	Pension expense included in Nonoperating Income (Expense)	$	(8)	$	0

In the third quarter of 2020, the Company also recorded $16 million of pension expense within Special items - restructuring charges for those pilots accepting certain furlough mitigation programs, which is not reflected in the table above.

1916

NOTE 7. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of ~~September 30, 2020~~March 31, 2021 (in millions):


		Aircraft Commitments(a)		Capacity Purchase Agreements (b)		Aircraft Maintenance Deposits			Aircraft Commitments(a)		Capacity Purchase Agreements (b)
Remainder of 2020		$	343	$	36	$	7
2021		549		166		35
Remainder of 2021								Remainder of 2021	$	111	$	124
2022	2022	333		174		45		2022	1,325		173
2023	2023	192		179		24		2023	681		178
2024	2024	21		184		6		2024	183		183
2025								2025	15		188
Thereafter	Thereafter	25		880		2		Thereafter	12		877
Total	Total	$	1,463	$	1,619	$	119	Total	$	2,327	$	1,723

(a)Includes non-cancelable contractual commitments for aircraft and engines, aircraft maintenance and parts management.

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

During the nine months ended September 30, 2020 the Company renegotiated scheduled payments with certain lessors and vendor partners, including the reduction of minimum obligations and rates. The impact of those negotiations on our leases was not material to the operating lease liability. The Company has also deferred the payment of remaining 2020 contractual aircraft commitments, including those related to the B737 MAX9, to periods beyond 2020.

Aircraft Commitments

Aircraft purchase commitments include non-cancelable contractual commitments for aircraft and engines. As of ~~September 30, 2020,~~March 31, 2021, Alaska had commitments to purchase ~~32 B737 MAX9~~51 B737-9 MAX aircraft, with contracted deliveries between ~~2020~~2021 and ~~2023. As a result of the grounding order mandated by the FAA on March 13, 2019, the delivery schedule for these MAX aircraft is subject to change.~~2024. Future minimum contractual payments for these aircraft have been updated to reflect the ~~possible~~expected delivery timing, but are also subject to change. Horizon also has commitments to purchase 3 E175 aircraft with deliveries in 2023. Alaska has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2024 through ~~2026.~~2027. In addition, Alaska has options to purchase ~~37 B737~~52 B737-9 MAX aircraft, and Horizon has options to purchase 30 E175 aircraft. ~~Alaska also has the option to increase capacity flown by SkyWest with 8 additional E175 aircraft with deliveries in 2022.~~

The cancelable purchase commitments and option payments are not reflected in the table above. ~~Given the COVID-19 pandemic, the Company is in discussion with aircraft manufacturers regarding these purchase commitments and delivery timelines.~~

Contingencies

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

In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws. The court certified a class of approximately 1,800 flight attendants in November 2016. The Company believes the claims in this case are without factual and legal merit.

In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as a successor-in-interest to Virgin America, responsible for various damages and penalties sought by the class members. On February 4, 2019, the Court entered final judgment against Virgin America and Alaska Airlines in the amount of approximately $78 million. It did not award injunctive relief against Alaska Airlines. In February 2021, an appellate court reversed portions of the lower court decision and significantly reduced the judgment. The determination of total judgment has not been completed as of the date of this filing. Based on the facts and circumstances available, the Company believes the range of potential loss to be between $0 and $22 million, and holds an accrual for $22 million in Other accrued liabilities on the condensed consolidated balance sheets. It did not award injunctive relief against Alaska Airlines.

The Company is seeking an appellate court ruling that the California laws on which the judgment is based are invalid as applied to national airlines pursuant to the U.S. Constitution and federal law and for other employment law and improper class certification reasons. The Company remains confident that a higher court will respect the federal preemption principles that were enacted to shield inter-state common carriers from a patchwork of state and local wage and hour regulations such as those at issue in this case and agree with the Company's other bases for appeal. ~~For these reasons, no loss has been accrued.~~

In January 2019, a pilot filed a class action lawsuit seeking to represent all Alaska and Horizon pilots for damages based on alleged violations of the Uniformed Services Employment and Reemployment Rights Act (USERRA). Plaintiff received class certification in August 2020. The case is in discovery. The Company believes the claims in the case are without factual and legal merit and intends to defend the lawsuit.

The Company is involved in other litigation around the application of state and local employment laws, like many air carriers. Our defenses are similar to those identified above, including that the state and local laws are preempted by federal law and are unconstitutional because they impede interstate commerce. None of these additional disputes are material.

This forward-looking statement is based on management's current understanding of the relevant laws and facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries.

NOTE 8. SHAREHOLDERS' EQUITY

Common Stock Repurchase

In August 2015, the Board of Directors authorized a $1 billion share repurchase program. As of ~~September 30, 2020,~~March 31, 2021, the Company has repurchased 7.6 million shares for $544 million under this program. In March 2020, the Company suspended the share repurchase program indefinitely.

CARES Act Warrant Issuance

As additional taxpayer protection required under ~~the~~ PSP 2, during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 the Company granted the Treasury a total of ~~915,930~~255,874 warrants to purchase Alaska Air Group (ALK) common stock at a strike price of ~~$31.61,~~$52.25, based on the closing price on ~~April 9,~~December 24, 2020. The warrants are non-voting, freely transferable, may be settled as net shares or in cash at Alaska's option, and have a ~~five year~~five-year term.

~~Additionally, in connection with the execution~~Total warrants outstanding are as follows as of ~~the CARES Act loan agreement,~~March 31, 2021:


	Number of shares of ALK common stock	Strike Price
PSP 1	928,127	$	31.61
CARES Act loan warrants	427,080	31.61
PSP 2	255,874	52.25


Total	1,611,081

Subsequent to March 31, 2021, Alaska and Horizon received additional funding under PSP 2. As additional taxpayer protection, the Company ~~agreed to issue warrants to the Treasury to purchase up to an aggregate of 4,115,786 shares of ALK common stock (the Warrant Agreement). Under the Warrant Agreement, warrants will be~~ granted to the Treasury in conjunction with each new borrowing under the Agreement. Warrants to purchase shares shall be equal to 10% of each borrowing, divided by $31.61, the closing price of Air Group common stock on April 9, 2020. Pursuant to the Warrant Agreement, on the closing date, Air Group granted the Treasury 427,08045,855 warrants to purchase ALK common stock at a strike price of ~~$31.61. Upon upsize~~$52.25, based on the closing price on December 24, 2020. Also subsequent to March 31, 2021, Alaska, Horizon, and McGee received a portion of total funding made available under PSP 3. The Company granted 88,395 warrants to purchase ALK common stock at a strike price of $66.39, based on the ~~loan agreement~~closing price on March 10, 2021. The warrants are non-voting, freely transferable, may be settled as net shares or in ~~October 2020, an additional 1,983,550 warrants were added to the aggregate.~~cash at Alaska's option, and have a five-year term.

Accumulated other comprehensive loss

Components of accumulated other comprehensive loss, net of tax (in millions):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Related to marketable securities	Related to marketable securities	$	25	$	9	Related to marketable securities	$	11	$	23
Related to employee benefit plans	Related to employee benefit plans	(453)		(469)		Related to employee benefit plans	(492)		(498)
Related to interest rate derivatives	Related to interest rate derivatives	(22)		(5)		Related to interest rate derivatives	(13)		(19)
Total	Total	$	(450)	$	(465)	Total	$	(494)	$	(494)

Earnings Per Share (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, using the treasury-stock method. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ anti-dilutive shares excluded from the calculation of EPS were not material.

NOTE 9. OPERATING SEGMENT INFORMATION

Alaska Air Group has two operating ~~airlines—~~airlines – Alaska and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon, as well as with SkyWest, under which Alaska receives all passenger revenues.

Under U.S. GAAP, operating segments are defined as components of a business for which there is discrete financial information that is regularly assessed by the Chief Operating Decision Maker (CODM) in making resource allocation decisions.

Financial performance for the operating airlines and CPAs is managed and reviewed by the Company's CODM as part of 3three reportable operating segments:

•Mainline - includes scheduled air transportation on Alaska's Boeing or Airbus jet aircraft for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, and Costa Rica.

•Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. under a CPA. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.

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

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

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

2219

Operating segment information is as follows (in millions):


		Three Months Ended September 30, 2020															Three Months Ended March 31, 2021
		Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated			Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues	Operating Revenues															Operating Revenues
Passenger revenues	Passenger revenues	$	401	$	171	$	0	$	0	$	572	$	0	$	572	Passenger revenues	$	506	$	153	$	0	$	0	$	659	$	0	$	659
CPA revenues	CPA revenues	0		0		95		(95)		0		0		0		CPA revenues	0		0		104		(104)		0		0		0
Mileage Plan other revenue	Mileage Plan other revenue	65		19		0		0		84		0		84		Mileage Plan other revenue	80		14		0		0		94		0		94
Cargo and other	Cargo and other	45		0		0		0		45		0		45		Cargo and other	44		—		0		0		44		0		44
Total Operating Revenues	Total Operating Revenues	511		190		95		(95)		701		0		701		Total Operating Revenues	630		167		104		(104)		797		0		797
Operating Expenses	Operating Expenses															Operating Expenses
Operating expenses, excluding fuel	Operating expenses, excluding fuel	872		248		78		(97)		1,101		46		1,147		Operating expenses, excluding fuel	893		265		88		(109)		1,137		(382)		755
Economic fuel	Economic fuel	90		38		0		0		128		(3)		125		Economic fuel	174		52		0		(1)		225		(22)		203
Total Operating Expenses	Total Operating Expenses	962		286		78		(97)		1,229		43		1,272		Total Operating Expenses	1,067		317		88		(110)		1,362		(404)		958
Nonoperating Income (Expense)	Nonoperating Income (Expense)															Nonoperating Income (Expense)
Interest income	Interest income	8		0		0		(1)		7		0		7		Interest income	7		0		0		0		7		0		7
Interest expense	Interest expense	(28)		0		(6)		0		(34)		0		(34)		Interest expense	(27)		0		(5)		0		(32)		0		(32)
Interest capitalized	Interest capitalized	4		0		0		0		4		0		4		Interest capitalized	3		0		0		0		3		0		3
Other - net	Other - net	4		0		0		1		5		0		5		Other - net	10		0		0		0		10		0		10
Total Nonoperating Income (Expense)	Total Nonoperating Income (Expense)	(12)		0		(6)		0		(18)		0		(18)		Total Nonoperating Income (Expense)	(7)		0		(5)		0		(12)		0		(12)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(463)	$	(96)	$	11	$	2	$	(546)	$	(43)	$	(589)	Income (Loss) Before Income Tax	$	(444)	$	(150)	$	11	$	6	$	(577)	$	404	$	(173)

		Three Months Ended September 30, 2019															Three Months Ended March 31, 2020
		Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated			Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues	Operating Revenues															Operating Revenues
Passenger revenues	Passenger revenues	$	1,850	$	361	$	0	$	0	$	2,211	$	0	$	2,211	Passenger revenues	$	1,234	$	247	$	0	$	0	$	1,481	$	0	$	1,481
CPA revenues	CPA revenues	0		0		112		(112)		0		0		0		CPA revenues	0		0		105		(105)		0		0		0
Mileage Plan other revenue	Mileage Plan other revenue	107		11		0		0		118		0		118		Mileage Plan other revenue	98		11		0		0		109		0		109
Cargo and other	Cargo and other	58		1		0		1		60		—		60		Cargo and other	44		0		0		2		46		0		46
Total Operating Revenues	Total Operating Revenues	2,015		373		112		(111)		2,389		0		2,389		Total Operating Revenues	1,376		258		105		(103)		1,636		0		1,636
Operating Expenses	Operating Expenses															Operating Expenses
Operating expenses, excluding fuel	Operating expenses, excluding fuel	1,226		275		94		(119)		1,476		5		1,481		Operating expenses, excluding fuel	1,159		269		92		(110)		1,410		163		1,573
Economic fuel	Economic fuel	411		75		0		0		486		0		486		Economic fuel	313		62		0		0		375		9		384
Total Operating Expenses	Total Operating Expenses	1,637		350		94		(119)		1,962		5		1,967		Total Operating Expenses	1,472		331		92		(110)		1,785		172		1,957
Nonoperating Income (Expense)	Nonoperating Income (Expense)															Nonoperating Income (Expense)
Interest income	Interest income	17		0		0		(6)		11		0		11		Interest income	14		0		0		(5)		9		0		9
Interest expense	Interest expense	(18)		0		(7)		7		(18)		0		(18)		Interest expense	(12)		0		(5)		4		(13)		0		(13)
Interest capitalized	Interest capitalized	4		0		0		0		4		0		4		Interest capitalized	3		0		0		0		3		0		3
Other - net	Other - net	(3)		0		0		0		(3)		0		(3)		Other - net	6		0		0		(1)		5		0		5
Total Nonoperating Income (Expense)	Total Nonoperating Income (Expense)	0		0		(7)		1		(6)		0		(6)		Total Nonoperating Income (Expense)	11		0		(5)		(2)		4		0		4
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	378	$	23	$	11	$	9	$	421	$	(5)	$	416	Income (Loss) Before Income Tax	$	(85)	$	(73)	$	8	$	5	$	(145)	$	(172)	$	(317)

Nine Months Ended September 30, 2020
Mainline Regional Horizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenues
Passenger revenues $ 1,860 $ 502 $ 0 $ 0 $ 2,362 $ 0 $ 2,362
CPA revenues 0 0 281 (281) 0 0 0
Mileage Plan other revenue 219 47 0 0 266 0 266
Cargo and other 128 0 0 2 130 0 130
Total Operating Revenues 2,207 549 281 (279) 2,758 0 2,758
Operating Expenses
Operating expenses, excluding fuel 2,777 727 238 (289) 3,453 (83) 3,370
Economic fuel 448 120 0 0 568 0 568
Total Operating Expenses 3,225 847 238 (289) 4,021 (83) 3,938
Nonoperating Income (Expense)
Interest income 33 0 0 (10) 23 0 23
Interest expense (58) 0 (16) 10 (64) 0 (64)
Interest capitalized 8 0 0 0 8 0 8
Other - net 16 0 0 0 16 0 16
Total Nonoperating Income (Expense) (1) 0 (16) 0 (17) 0 (17)
Income (Loss) Before Income Tax $ (1,019) $ (298) $ 27 $ 10 $ (1,280) $ 83 $ (1,197)
Nine Months Ended September 30, 2019
Mainline Regional Horizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenues
Passenger revenues $ 5,039 $ 999 $ 0 $ 0 $ 6,038 $ 0 $ 6,038
CPA revenues 0 0 340 (340) 0 0 0
Mileage Plan other revenue 312 34 0 0 346 0 346
Cargo and other 163 2 1 3 169 0 169
Total Operating Revenues 5,514 1035 341 (337) 6,553 0 6,553
Operating Expenses
Operating expenses, excluding fuel 3,545 817 286 (353) 4,295 39 4,334
Economic fuel 1,191 218 0 0 1,409 (1) 1,408
Total Operating Expenses 4,736 1,035 286 (353) 5,704 38 5,742
Nonoperating Income (Expense)
Interest income 50 0 0 (19) 31 0 31
Interest expense (58) 0 (22) 20 (60) 0 (60)
Interest capitalized 11 0 0 0 11 0 11
Other - net (20) 0 0 0 (20) 0 (20)
Total Nonoperating Income (Expense) (17) 0 (22) 1 (38) 0 (38)
Income (Loss) Before Income Tax $ 761 $ 0 $ 33 $ 17 $ 811 $ (38) $ 773

(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 ~~allocations~~allocation and excludes certain ~~income and~~ charges. See Note A in the accompanying pages for further information.

(c)Includes ~~payroll support program grant~~Payroll Support Program wage offsets, special items and mark-to-market fuel hedge accounting adjustments.

2420

Total assets were as follows (in millions):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Mainline	Mainline	$	20,586	$	19,207	Mainline	$	19,951	$	19,754
Horizon	Horizon	1,231		1,266		Horizon	1,200		1,170
Consolidating & Other	Consolidating & Other	(7,068)		(7,480)		Consolidating & Other	(6,889)		(6,878)
Consolidated	Consolidated	$	14,749	$	12,993	Consolidated	$	14,262	$	14,046


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

OVERVIEW

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our company, segment operations and the present business environment. MD&A is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report’s introductory cautionary note and the risks mentioned in "Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2019, and in Item 1A. "Risk Factors" of Part II of this Form 10-Q.~~2020. This overview summarizes the MD&A, which includes the following sections:

•~~Third~~First Quarter Review—highlights from the ~~third~~first quarter of ~~2020~~2021 outlining some of the major events that happened during the period and how they affected our financial performance.

•Results of Operations—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of the remainder of ~~2020.~~2021.

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

~~THIRD~~FIRST QUARTER REVIEW

~~COVID-19 Impacts~~Business Recovery and ~~Response~~Financial Outlook

The ~~impacts of~~ COVID-19 pandemic continues to have a material impact on our ~~business have been unprecedented,~~business. However, in the first quarter of 2021 we began to see positive momentum toward recovery. Vaccine availability, coupled with the relaxation of restrictions imposed by state and have presented us with some of the greatest challenges in our 88-year history. The cancellation of large public events, suspension of business travel, closure of popular tourist destinations and implementation of stay-at-home orders throughout the country beginning in March 2020 has drivenlocal governments helped to stimulate demand for air travel to ~~historic lows.~~the highest level since the onset of the pandemic. Positive revenue and forward booking trends, combined with the benefits from cost-saving measures enacted in 2020 and the PSP wage offset, drove positive operating cash flow of $167 million for the quarter.

~~Although~~During the first quarter of 2021, we ~~have seen slow improvements in demand through~~also completed key milestones which will be instrumental to our future success. On March 31, 2021, Alaska formally entered the ~~second~~oneworld® alliance as the 14th member airline. Entry into the alliance will move Alaska forward as a global airline and third quarters of 2020 as daily passenger counts have grown from a low of 5,000 per day to approximately 40,000 in September, we remain well below prior-year traffic levels. Some targeted promotions, including a "Buy the Row" sale, have provided meaningful cash bookingswill provide increased connectivity and ~~positive reactions from guests, indicating that there is underlying demand~~benefits for air travel when the time is right. Based on several recent studies performed on the safety of air travel during the pandemic, we strongly believe air travel is, and has been, safe and we stand ready as our guests ~~return to~~and Mileage Plan members. This alliance, coupled with our West Coast International Alliance with American, uniquely positions us for recovery through increased corporate travel ~~over the coming months.~~and international connectivity.

~~However, as~~Also in the first quarter of 2021, we ~~expect recovery~~finalized a previously announced deal with Boeing to ~~be slow~~restructure Alaska's aircraft purchase agreement and ~~we face~~increase the ~~reality that our airlines are, and will be, significantly smaller than we were a year ago, we had to make~~number of firm aircraft deliveries. Under the ~~difficult decision to reduce our workforce at the end~~terms of the ~~third quarter. We initiated various early-out and furlough mitigation programs~~agreement, Alaska will take delivery of 55 Boeing 737-9 MAX aircraft with options for ~~frontline work groups,~~an additional 52 planes. The deliveries secured under the Boeing agreement, as well as ~~incentive leaves for~~the 13 additional leased 737-9 MAX aircraft from Air Lease Corporation, provide Alaska ~~pilots~~with the ability to replace most of the outgoing leased Airbus fleet with more fuel efficient and cost-effective Boeing aircraft. The first four aircraft ~~mechanics. These leaves~~available under this agreement were accepted by approximately 4,000 employees, including over 600 employees volunteering for early-out separation from the Company. In addition, we reduced our non-union management positions by approximately 300 positions. As a result of these actions, we were able to reduce the number of involuntary furloughs to approximately 400. Costs of $322 million associated with these programs were recordeddelivered in the ~~third quarter. We expect these workforce reductions will result~~first quarter, with two entering revenue service in ~~permanent annual savings of approximately $130 million.~~

These and other structural cost reduction measures are critical to reaching our monthly cash preservation goals. We believe getting to a zero cash burn position will be a leading indicator of industry health and recovery, and we believe we will be the first airline to reach this goal. Our capacity and cash bookings planning assumptions do not represent guidance, and we will adjust our plans if demand trends do not support these assumptions.March.

2621

~~Looking forward,~~In 2021, guidance will be compared to 2019 as we believe it provides meaningful indication of the pace and quality of recovery to pre-pandemic levels. For the second quarter, we are planning for capacity ~~in the fourth quarter~~ to be approximately ~~40%~~20% below the same period in 2019. We expect to see continued increases in passenger counts ~~from~~during the ~~holiday~~summer travel season and as ~~Hawai'i reopens to tourism travel. However,~~more destinations relax restrictions and the vaccine rollout continues. As we ~~do expect~~have been measured in returning capacity and optimizing the aircraft gauge for flown routes, we anticipate second quarter load factors to ~~be in the~~ range ~~of 45%~~between 70% to ~~55% given our decision to block middle seats on the majority of our mainline flights through January 6, 2021.~~

Currently, by the summer of 2021, our planning assumption is that capacity will be approximately 80% of the summer of 2019. Although, that is subject to change given the ever-changing dynamic of the COVID-19 pandemic and the demand for air travel. We will remain flexible as the situation changes and are committed to take advantage of opportunities that may arise as the industry begins to recover.

Maintaining a significant liquidity balance is also paramount to preserving our financial strength. In addition to the $1 billion in CARES Act funding obtained in the second quarter of 2020, we have also sourced $589 million in secured financing, drawn $400 million from our existing credit facilities, and issued $1.2 billion in EETCs. We also have available to us $1.9 billion in CARES Act loans, from which we have drawn $135 million to support general business operations. As of November 3, 2020, our cash and marketable securities balance was approximately $3.5 billion.

~~Guest and employee safety~~75%.

Our ~~commitment~~outlook, and the guidance provided, is sensitive to health trends, the ~~health~~vaccine rollout, and ~~safety of our guests~~regulations and ~~employees remains our top priority. In response~~restrictions imposed by state, local and federal authorities. Our plans for 2021 will be responsive to emerging information and the ~~crisis,~~guidance we have ~~partnered~~provided above is subject to greater uncertainty than we have historically experienced. Our people are focused on keeping our costs low, running a great operation, and welcoming guests back to travel with ~~experts to build our~~ Next-Level Care ~~initiative. In doing so,~~to ensure they are safe and comfortable when they fly. These competitive advantages we have ~~added layers of safety with~~cultivated over ~~100 safety measures through all stages of travel. Some examples of measures~~many years will continue to serve us well in 2021 and beyond, and we are confident that we are ~~helping our guests build confidence include:~~prepared to meet the challenges ahead and that we will emerge from the pandemic a stronger and more resilient airline.

•~~Making the pre-flight experience as contactless as possible, including the addition of a health agreement during check-in;~~Sustainability Updates

•~~Requiring masks~~As we move into a new phase of recovery, we have shifted attention back to our 2025 strategic plan, which was announced in 2019. Recently, we published updates on our 2025 goals, which include increased commitments towards diversity, equity and inclusion, as well as expanded sustainability efforts. We have highlighted our commitment and support for ~~both guests aged 2 and older and employees, and empowering our crews to enforce the policy~~equity in education through a new 737-900ER livery designed in partnership with the ~~ability~~United Negro College Fund. Additionally, in April 2021, we announced strengthened commitments to ~~issue a formal warning~~reduce our carbon footprint, including joining the Amazon Climate Pledge, which calls for reducing our carbon emissions to ~~any guest who refuses~~net-zero by 2040. In order to ~~do so;~~achieve this, we have identified specific areas of focus, and have placed emphasis on goals which are achievable by 2025, including becoming the most fuel-efficient U.S. airline and reducing emissions from ground service equipment by 50%.

•~~Using the latest air filtration technology and hospital grade filters to remove particulates and fully recycle air in the cabin every 2 to 3 minutes;~~

•~~Exceeding CDC cleaning guidelines and using high grade disinfectants to reduce the risk of transmission on board, and;~~

•~~Providing for adequate social distancing in our airports and on-board, including blocking middle seats on mainline aircraft through January 6, 2021.~~

~~oneworld~~ ~~Invitation~~

~~In July 2020, we received our formal invitation to join the~~ ~~one~~world alliance. Upon entrance to the alliance, Alaska guests will be able to access the full range of customer services and benefits, and Mileage Plan members will be able to earn and redeem rewards on all ~~oneworld member airlines. The Company is working to accelerate its timeline for entrance into the alliance, with~~As a ~~focus on completion by the end~~reflection of the ~~first quarter~~importance of ~~2021.~~the commitments made, we have tied a portion of long-term executive compensation to achievement of diversity goals. Additionally, we have incorporated a carbon emission target into our company-wide performance-based pay program.

Financial Overview

Our consolidated ~~pretax~~pre-tax loss ~~was $589 million during~~for the ~~third~~first quarter of ~~2020,~~2021 was $173 million, compared to ~~pretax profit~~a pre-tax loss of ~~$416~~$317 million in the ~~third~~first quarter of ~~2019.~~2020. The ~~shift to pretax loss was~~$144 million improvement is primarily driven ~~primarily~~ by ~~a decrease in operating revenues of $1.7 billion stemming~~the $411 million wage offset from the ~~sharp decline in demand, $322 million in restructuring costs,~~extension of the Payroll Support Program of the CARES Act, as well as lower wages and ~~$121 million in special charges from asset impairment,~~benefits and aircraft fuel due to decreased flight activity. These benefits were offset by a decrease of $839 million in ~~non-fuel~~ operating ~~expenses~~revenue, primarily a result of ~~$334 million, including wage offsets from~~reduced demand for business and leisure travel during the ~~payroll support program of the CARES Act of $398 million. Pretax loss was also offset by a decrease in fuel expense of $361 million.~~COVID-19 pandemic.

See “Results of Operations” below for further discussion of changes in revenues and operating expenses 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.

RESULTS OF OPERATIONS

ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS

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

•By excluding fuel expense and certain special items (including the ~~payroll support program~~Payroll Support Program grant wage offset, impairment and restructuring charges and merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction initiatives emerging from the COVID-19 pandemic. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can lead to a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers, such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.

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

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

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

•Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of these items as noted above is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.

•Although we disclose our unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.

Although we are presenting these non-GAAP amounts for the reasons above, investors and other readers should not necessarily conclude that these amounts are non-recurring, infrequent, or unusual in nature.

2823

OPERATING STATISTICS SUMMARY (unaudited)

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


		Three Months Ended September 30,			Nine Months Ended September 30,				Three Months Ended March 31,
		2020	2019	Change	2020	2019	Change		2021	2020	Change
Consolidated Operating Statistics:(a)	Consolidated Operating Statistics:(a)							Consolidated Operating Statistics:(a)
Revenue passengers (000)	Revenue passengers (000)	3,595	12,574	(71.4)%	14,012	35,018	(60.0)%	Revenue passengers (000)	4,666	8,932	(47.8)%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	3,817	15,026	(74.6)%	16,127	42,113	(61.7)%	RPMs (000,000) "traffic"	5,393	10,656	(49.4)%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	7,871	17,519	(55.1)%	27,483	50,006	(45.0)%	ASMs (000,000) "capacity"	10,397	15,304	(32.1)%
Load factor	Load factor	48.5%	85.8%	(37.3) pts	58.7%	84.2%	(25.5) pts	Load factor	51.9%	69.6%	(17.7) pts
Yield	Yield	14.99¢	14.71¢	1.9%	14.65¢	14.34¢	2.1%	Yield	12.22¢	13.90¢	(12.1)%
RASM	RASM	8.90¢	13.64¢	(34.8)%	10.04¢	13.10¢	(23.4)%	RASM	7.67¢	10.69¢	(28.3)%
CASM excluding fuel and special items(b)	CASM excluding fuel and special items(b)	14.00¢	8.43¢	66.1%	12.57¢	8.59¢	46.3%	CASM excluding fuel and special items(b)	10.93¢	9.22¢	18.5%
Economic fuel cost per gallon(b)	Economic fuel cost per gallon(b)	$1.32	$2.13	(38.0)%	$1.65	$2.18	(24.3)%	Economic fuel cost per gallon(b)	$1.79	$1.93	(7.3)%
Fuel gallons (000,000)	Fuel gallons (000,000)	97	227	(57.4)%	344	646	(46.7)%	Fuel gallons (000,000)	126	194	(35.1)%
ASMs per fuel gallon	ASMs per fuel gallon	81.3	77.2	5.3%	79.9	77.4	3.2%	ASMs per fuel gallon	82.4	78.9	4.4%
Average full-time equivalent employees (FTEs)	Average full-time equivalent employees (FTEs)	16,027	22,247	(28.0)%	18,112	22,000	(17.7)%	Average full-time equivalent employees (FTEs)	17,140	22,473	(23.7)%
Mainline Operating Statistics:	Mainline Operating Statistics:							Mainline Operating Statistics:
Revenue passengers (000)	Revenue passengers (000)	2,156	9,655	(77.7)%	9,736	26,725	(63.6)%	Revenue passengers (000)	3,151	6,675	(52.8)%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	2,958	13,538	(78.2)%	13,816	37,917	(63.6)%	RPMs (000,000) "traffic"	4,589	9,582	(52.1)%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	6,280	15,702	(60.0)%	23,339	44,816	(47.9)%	ASMs (000,000) "capacity"	8,853	13,697	(35.4)%
Load factor	Load factor	47.1%	86.2%	(39.1) pts	59.2%	84.6%	(25.4) pts	Load factor	51.8%	70.0%	(18.2) pts
Yield	Yield	13.56¢	13.66¢	(0.7)%	13.46¢	13.29¢	1.3%	Yield	11.02¢	12.88¢	(14.4)%
RASM	RASM	8.14¢	12.83¢	(36.6)%	9.46¢	12.30¢	(23.1)%	RASM	7.11¢	10.05¢	(29.3)%
CASM excluding fuel and special items(b)	CASM excluding fuel and special items(b)	13.88¢	7.81¢	77.7%	11.90¢	7.91¢	50.4%	CASM excluding fuel and special items(b)	10.08¢	8.46¢	19.1%
Economic fuel cost per gallon(b)	Economic fuel cost per gallon(b)	$1.31	$2.13	(38.5)%	$1.66	$2.17	(23.5)%	Economic fuel cost per gallon(b)	$1.77	$1.92	(7.8)%
Fuel gallons (000,000)	Fuel gallons (000,000)	69	193	(64.2)%	270	549	(50.8)%	Fuel gallons (000,000)	98	163	(39.9)%
ASMs per fuel gallon	ASMs per fuel gallon	91.0	81.4	11.8%	86.4	81.6	5.9%	ASMs per fuel gallon	90.3	84.0	7.5%
Average FTEs	Average FTEs	12,032	16,789	(28.3)%	13,730	16,599	(17.3)%	Average FTEs	12,473	16,818	(25.8)%
Aircraft utilization	Aircraft utilization	7.3	11.3	(35.4)%	8.3	10.9	(23.9)%	Aircraft utilization	8.5	10.1	(15.8)%
Average aircraft stage length	Average aircraft stage length	1,244	1,281	(2.9)%	1,263	1,298	(2.7)%	Average aircraft stage length	1,303	1,306	(0.2)%
Operating fleet(d)	Operating fleet(d)	217	238	(21) a/c	217	238	(21) a/c	Operating fleet(d)	201	225	(24) a/c
Regional Operating Statistics:(c)	Regional Operating Statistics:(c)							Regional Operating Statistics:(c)
Revenue passengers (000)	Revenue passengers (000)	1,439	2,919	(50.7)%	4,276	8,293	(48.4)%	Revenue passengers (000)	1,515	2,257	(32.9)%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	859	1,488	(42.3)%	2,311	4,196	(44.9)%	RPMs (000,000) "traffic"	804	1,074	(25.1)%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	1,592	1,817	(12.4)%	4,143	5,190	(20.2)%	ASMs (000,000) "capacity"	1,544	1,607	(3.9)%
Load factor	Load factor	54.0%	81.9%	(27.9 pts)	55.8%	80.8%	(25.0 pts)	Load factor	52.1%	66.8%	(14.7 pts)
Yield	Yield	19.89¢	24.23¢	(17.9)%	21.72¢	23.81¢	(8.8)%	Yield	19.04¢	23.04¢	(17.4)%
RASM	RASM	11.91¢	20.51¢	(41.9)%	13.24¢	19.93¢	(33.6)%	RASM	10.84¢	16.09¢	(32.6)%
Operating fleet	Operating fleet	94	94	— a/c	94	94	— a/c	Operating fleet	94	94	— a/c

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

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

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

(d)Excludes ~~20 Airbus~~all aircraft permanently ~~parked in the first nine months of 2020.~~removed from operating service.

2924

Given the unusual nature of 2020, we believe that some analysis of specific financial and operational results compared to 2019 provides meaningful insight. The table below includes comparative results from 2021 to 2019.


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

	Three Months Ended March 31,
	2021		2019		Change
Passenger revenue	$	659	$	1,716	(62)	%
Mileage plan other revenue	94		110		(15)	%
Cargo and other	44		50		(12)	%
Total operating revenues	$	797	$	1,876	(58)	%

Operating expense, excluding fuel and special items	$	1,137	$	1,405	(19)	%
Economic fuel	203		420		(52)	%
Special items	(382)		26		NM
Total operating expenses	$	958	$	1,851	(48)	%

Total nonoperating expense	(12)		(19)		(37)	%
Income (loss) before income tax	$	(173)	$	6	NM

Consolidated Operating Statistics(a):
Revenue passengers (000)	4,666		10,417		(55)	%
RPMs (000,000) "traffic"	5,393		12,449		(57)	%
ASMs (000,000) "capacity"	10,397		15,508		(33)	%
Load Factor	51.9%		80.3%		(28.4)	pts
Yield	12.22¢		13.78¢		(11)	%
RASM	7.67¢		12.10¢		(37)	%
CASMex	10.93¢		9.06¢		21	%
FTEs	17,140		21,832		(21)	%

(a)2019 comparative operating statistics have been recalculated using the information presented above, and as filed in our first quarter 2019 Form 10-Q

COMPARISON OF THREE MONTHS ENDED ~~SEPTEMBER 30, 2020~~MARCH 31, 2021 TO THREE MONTHS ENDED ~~SEPTEMBER 30, 2019~~MARCH 31, 2020

Our consolidated net loss for the three months ended ~~September 30, 2020~~March 31, 2021 was ~~$431~~$131 million, or ~~$3.49~~$1.05 per ~~diluted~~ share, compared to a net ~~income~~loss of ~~$322~~$232 million, or ~~$2.60~~$1.89 per ~~diluted~~ share, for the three months ended ~~September 30, 2019.~~March 31, 2020.

Excluding the impact of the ~~payroll support program~~Payroll Support Program grant wage offset, special items and mark-to-market fuel hedge adjustments, our adjusted net loss for the ~~third~~first quarter of ~~2020~~2021 was ~~$399~~$436 million, or ~~$3.23~~$3.51 per ~~diluted~~ share, compared to an adjusted net ~~income~~loss of ~~$326~~$102 million, or ~~$2.63~~$0.83 per ~~diluted~~ share, in the ~~third~~first quarter of ~~2019.~~2020. The following tables reconcile our adjusted net ~~income and adjusted earnings~~loss per ~~diluted~~ share (EPS) to amounts as reported in accordance with GAAP:


		Three Months Ended September 30,									Three Months Ended March 31,
		2020				2019					2021				2020
(in millions, except per share amounts)	(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS		(in millions, except per share amounts)	Dollars		EPS		Dollars		EPS
GAAP net income (loss) and diluted EPS		$	(431)	$	(3.49)	$	322	$	2.60
Payroll support program grant wage offset		(398)		(3.22)		—		—
GAAP net loss per share										GAAP net loss per share	$	(131)	$	(1.05)	$	(232)	$	(1.89)
Payroll Support Program grant wage offset										Payroll Support Program grant wage offset	(411)		(3.31)		—		—
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(3)		(0.02)		—		—		Mark-to-market fuel hedge adjustments	(22)		(0.18)		9		0.07
Special items - impairment charges and other	Special items - impairment charges and other	121		0.98		—		—		Special items - impairment charges and other	18		0.14		160		1.30
Special items - restructuring charges										Special items - restructuring charges	11		0.09		—		—
Special items - merger-related costs	Special items - merger-related costs	1		0.01		5		0.04		Special items - merger-related costs	—		—		3		0.03
Special items - restructuring charges		322		2.60		—		—
Income tax effect of reconciling items above	Income tax effect of reconciling items above	(11)		(0.09)		(1)		(0.01)		Income tax effect of reconciling items above	99		0.80		(42)		(0.34)
Non-GAAP adjusted net income (loss) and diluted EPS		$	(399)	$	(3.23)	$	326	$	2.63
Non-GAAP adjusted net loss per share										Non-GAAP adjusted net loss per share	$	(436)	$	(3.51)	$	(102)	$	(0.83)

CASM reconciliation is summarized below:


		Three Months Ended September 30,							Three Months Ended March 31,
(in cents)	(in cents)	2020		2019		% Change		(in cents)	2021		2020		% Change
Consolidated:	Consolidated:							Consolidated:
CASM	CASM	16.16	¢	11.23	¢	44	%	CASM	9.21	¢	12.79	¢	(28)	%
Less the following components:	Less the following components:							Less the following components:
Payroll support program grant wage offset		(5.06)		—		NM
Payroll Support Program grant wage offset								Payroll Support Program grant wage offset	(3.95)		—		NM
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	1.59		2.77		(43)	%	Aircraft fuel, including hedging gains and losses	1.95		2.51		(22)	%
Special items - merger-related costs		0.01		0.03		(67)	%
Special items - impairment charges and other	Special items - impairment charges and other	1.53		—		NM		Special items - impairment charges and other	0.17		1.04		(83.6)
Special items - restructuring charges	Special items - restructuring charges	4.09		—		NM		Special items - restructuring charges	0.11		—		NM
Special items - merger-related costs								Special items - merger-related costs	—		0.02		(100)	%
CASM excluding fuel and special items	CASM excluding fuel and special items	14.00	¢	8.43	¢	66	%	CASM excluding fuel and special items	10.93	¢	9.22	¢	19	%

Mainline:	Mainline:							Mainline:
CASM	CASM	16.80	¢	10.46	¢	61	%	CASM	8.07	¢	11.55	¢	(30)	%
Less the following components:	Less the following components:							Less the following components:
Payroll support program grant wage offset		(5.56)		—		NM
Payroll Support Program grant wage offset								Payroll Support Program grant wage offset	(4.06)		—		NM
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	1.43		2.62		(45)	%	Aircraft fuel, including hedging gains and losses	1.72		2.35		(27)	%
Special items - merger-related costs		0.02		0.03		(33)	%

Special items - impairment charges and other	Special items - impairment charges and other	1.93		—		NM		Special items - impairment charges and other	0.20		0.72		NM
Special items - restructuring charges	Special items - restructuring charges	5.10		—		NM		Special items - restructuring charges	0.13		—		NM
Special items - merger-related costs								Special items - merger-related costs	—		0.02		(100)	%
CASM excluding fuel and special items	CASM excluding fuel and special items	13.88	¢	7.81	¢	78	%	CASM excluding fuel and special items	10.08	¢	8.46	¢	19	%

3026

OPERATING REVENUES

Total operating revenues decreased ~~$1.7 billion,~~$839 million, or ~~71%~~51%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019.~~2020. The changes are summarized in the following table:


		Three Months Ended September 30,							Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		% Change		(in millions)	2021		2020		% Change
Passenger revenue	Passenger revenue	$	572	$	2,211	(74)	%	Passenger revenue	$	659	$	1,481	(56)	%
Mileage Plan other revenue	Mileage Plan other revenue	84		118		(29)	%	Mileage Plan other revenue	94		109		(14)	%
Cargo and other	Cargo and other	45		60		(25)	%	Cargo and other	44		46		(4)	%
Total operating revenues	Total operating revenues	$	701	$	2,389	(71)	%	Total operating revenues	$	797	$	1,636	(51)	%

Passenger Revenue

On a consolidated basis, Passenger revenue for the ~~third~~first quarter of ~~2020~~2021 decreased by ~~$1.6 billion,~~$822 million, or ~~74%~~56%, on a ~~75%~~49% decline in ~~traffic. Decreased revenue year-over-year is driven by the significant ongoing reductions~~traffic and a 12% decrease in yield. Although demand ~~caused by~~remains depressed due to the COVID-19 ~~pandemic. Impacts to demand began~~pandemic, which impacted revenues beginning in March 2020, we began to see increasing load factors in March 2021 stimulated by the relaxation of state and local restrictions and distribution of vaccinations. These improvements were offset by lower yields, stemming from promotional activities undertaken to stimulate demand and increase bookings during what is typically a low booking period.

We expect to see continued ~~through the third quarter. Although third quarter results show sequential~~revenue improvement, ~~from the prior quarter as more guests return to flying, capacity was reduced 55% of that flown~~primarily driven by leisure travelers, in the ~~third quarter of 2019, with a 37 point reduction in system-wide load factors.~~second quarter.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue decreased ~~$34~~$15 million, or ~~29%~~14%, as compared to the same prior-year period, ~~primarily on~~largely due to a reduction in ~~miles purchased~~awards by ~~our affinity card partner, consistent~~Alaska Mileage Plan members redeemed on other airlines, coupled with ~~an overall~~a reduction in ~~consumer spending.~~

~~Cargo and Other Revenue~~

On a consolidated basis, Cargo and other revenue for the third quarter of 2020 decreased by $15 million, or 25%, as compared to the same prior-year period. The decrease is primarily due to reduced belly cargo activity driven by the schedule reductions for passenger aircraft, as well as continued capacity limitations incommissions from our ~~freighters due to design issues that we are working to address with our third-party vendor.~~bank card partners.

OPERATING EXPENSES

Total operating expenses decreased ~~$695~~$999 million, or ~~35%~~51%, compared to the ~~third~~first quarter of ~~2019.~~2020. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:


		Three Months Ended September 30,							Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		% Change		(in millions)	2021		2020		% Change
Fuel expense	Fuel expense	$	125	$	486	(74)	%	Fuel expense	$	203	$	384	(47)	%
Non-fuel operating expenses, excluding special items	Non-fuel operating expenses, excluding special items	1,101		1,476		(25)	%	Non-fuel operating expenses, excluding special items	1,137		1,410		(19)	%
Payroll support program grant wage offset		(398)		—		NM
Special items - merger-related costs		1		5		(80)	%

Payroll Support Program grant wage offset								Payroll Support Program grant wage offset	(411)		—		NM
Special items - impairment charges and other	Special items - impairment charges and other	121		—		NM		Special items - impairment charges and other	18		160		(89)	%
Special items - restructuring charges	Special items - restructuring charges	322		—		NM		Special items - restructuring charges	11		—		NM
Special items - merger-related costs								Special items - merger-related costs	—		(3)		(100)	%
Total operating expenses	Total operating expenses	$	1,272	$	1,967	(35)	%	Total operating expenses	$	958	$	1,957	(51)	%

Fuel Expense

Aircraft fuel expense includes raw fuel expense (as defined below) plus the effect of mark-to-market adjustments to our fuel hedge portfolio as the value of that portfolio increases and decreases. Our aircraft fuel expense can be volatile because it includes these gains or losses in the value of the underlying instrument as crude oil prices and refining margins increase or decrease. Raw fuel expense is defined as the price that we generally pay at the airport, or the “into-plane” price, including taxes and fees. Raw fuel prices are impacted by world oil prices and refining costs, which can vary by region in the U.S. Raw fuel expense approximates cash paid to suppliers and does not reflect the effect of our fuel hedges.

Aircraft fuel expense decreased ~~$361~~$181 million, or ~~74%~~47%, compared to the ~~third~~first quarter of ~~2019.~~2020. The elements of the change are illustrated in the following table:


		Three Months Ended September 30,									Three Months Ended March 31,
		2020				2019					2021				2020
(in millions, except for per gallon amounts)	(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal		(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	Raw or "into-plane" fuel cost	$	123	$	1.27	$	481	$	2.11	Raw or "into-plane" fuel cost	$	222	$	1.77	$	370	$	1.91
Losses on settled hedges	Losses on settled hedges	5		0.05		5		0.02		Losses on settled hedges	3		0.02		5		0.02
Consolidated economic fuel expense	Consolidated economic fuel expense	128		1.32		$	486	$	2.13	Consolidated economic fuel expense	225		1.79		$	375	$	1.93
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(3)		(0.03)		—		—		Mark-to-market fuel hedge adjustments	(22)		(0.18)		9		0.05
GAAP fuel expense	GAAP fuel expense	$	125	$	1.29	$	486	$	2.13	GAAP fuel expense	$	203	$	1.61	$	384	$	1.98
Fuel gallons	Fuel gallons	97				227				Fuel gallons	126				194

Raw fuel expense per gallon for the three months ended ~~September 30, 2020~~March 31, 2021 decreased by approximately ~~40%~~7% due to lower West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil and refining margins associated with the conversion of crude oil to jet fuel. The decrease in raw fuel price per gallon during the ~~third~~first quarter of ~~2020~~2021 was primarily driven by a ~~27%~~37% decrease in refining margins, offset by a 24% increase in crude oil prices ~~and a 79% decrease in refining margins,~~ when compared to the prior year. ~~Crude oil prices have been dramatically impacted by~~Adjustments to inventory held in the ~~COVID-19 pandemic and~~first quarter of 2020, which were not required in the ~~related~~first quarter of 2021, also contributed to the year-over-year reduction, ~~in demand. The decrease is also due to~~coupled with a ~~year-over-year~~ decline in consumption of ~~130~~68 million gallons, or ~~57%~~35%, ~~primarily~~ on a ~~significant~~ reduction in scheduled departures.

We also evaluate economic fuel expense, which we define as raw fuel expense adjusted for the cash we receive from, or pay to, hedge counterparties for hedges that settle during the period, and for the premium expense that we paid for those contracts. A key difference between aircraft fuel expense and economic fuel expense is the timing of gain or loss recognition on our hedge portfolio. When we refer to economic fuel expense, we include gains and losses only when they are realized for those contracts that were settled during the period based on their original contract terms. We believe this is the best measure of the effect that fuel prices are currently having on our business as it most closely approximates the net cash outflow associated with purchasing fuel for our operations. Accordingly, many industry analysts evaluate our results using this measure, and it is the basis for most internal management reporting and incentive pay plans.

Losses recognized for hedges that settled during the ~~third~~first quarter were $5$3 million in ~~2020,~~2021, compared to losses of $5 million in the same period in ~~2019.~~2020. These amounts represent cash received from hedges at settlement, offset by cash paid for premium expense.

Non-fuel Expenses

The table below provides the reconciliation of the operating expense line items, excluding fuel, the ~~payroll support program~~Payroll Support Program grant wage offset and special items. Significant operating expense variances from ~~2019~~2020 are more fully described below.


	Three Months Ended March 31,
(in millions)	2021		2020		% Change
Wages and benefits	$	493	$	612	(19)	%
Variable incentive pay	33		7		371	%
Aircraft maintenance	81		115		(30)	%
Aircraft rent	62		81		(23)	%
Landing fees and other rentals	129		131		(2)	%
Contracted services	51		72		(29)	%
Selling expenses	33		55		(40)	%
Depreciation and amortization	97		108		(10)	%
Food and beverage service	23		49		(53)	%
Third-party regional carrier expense	30		37		(19)	%
Other	105		143		(27)	%
Total non-fuel operating expenses, excluding special items	$	1,137	$	1,410	(19)	%

Three Months Ended September 30,
(in millions) 2020 2019 % Change
Wages and benefits $ 495 $ 608 (19) %
Variable incentive pay 42 46 (9) %
Aircraft maintenance 84 106 (21) %
Aircraft rent 74 82 (10) %
Landing fees and other rentals 109 143 (24) %
Contracted services 36 72 (50) %
Selling expenses 24 77 (69) %
Depreciation and amortization 105 106 (1) %
Food and beverage service 14 57 (75) %
Third-party regional carrier expense 29 42 (31) %
Other 89 137 (35) %
Total non-fuel operating expenses, excluding special items $ 1,101 $ 1,476 (25) %

Wages and Benefits

Wages and benefits decreased during the ~~third~~first quarter of ~~2020~~2021 by ~~$113~~$119 million, or 19%, compared to ~~2019.~~2020. The primary components of Wages and benefits are shown in the following table:


		Three Months Ended September 30,							Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		% Change		(in millions)	2021		2020		% Change
Wages	Wages	$	356	$	460	(23)	%	Wages	$	357	$	453	(21)	%
Pension - Defined benefit plans service cost	Pension - Defined benefit plans service cost	11		10		10	%	Pension - Defined benefit plans service cost	13		13		—	%
Defined contribution plans	Defined contribution plans	28		34		(18)	%	Defined contribution plans	32		38		(16)	%
Medical and other benefits	Medical and other benefits	75		71		6	%	Medical and other benefits	65		76		(14)	%
Payroll taxes	Payroll taxes	25		33		(24)	%	Payroll taxes	26		32		(19)	%
Total wages and benefits	Total wages and benefits	$	495	$	608	(19)	%	Total wages and benefits	$	493	$	612	(19)	%

Wages decreased ~~$104~~$96 million, or ~~23%~~21%, on a ~~28%~~24% reduction in FTEs. ~~The decrease is~~Decreased wages as compared to the prior period are primarily ~~due to~~the result of voluntary early-outs, as well as leaves of absence ~~with an average of 4,600 employees on leave throughout the quarter, as well as~~and incentive lines accepted in 2020 which have carried into 2021. The reductions ~~in executive pay~~to defined-contribution plan expense, medical and ~~hours for management employees, and reducing represented employees work hours to minimums. Reduced employee wages directly correlate with the reduction in retirement contributions~~other benefits, and payroll ~~taxes.~~taxes are a direct result of the decline in wages.

Variable Incentive Pay

Variable incentive pay expense ~~decreased $4~~increased $26 million, or 9%371%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019, due to the~~2020 on increased expectation ~~that~~of achievement of key financial metrics will not be achieved under the performance based pay program. The decrease was offset by the recognition of nine months of expense for a supplemental incentive pay plan, which was approved in July 2020, and ~~increased~~ operational ~~bonuses as compared to the prior year.~~metrics.

Aircraft Maintenance

Aircraft maintenance expense decreased by ~~$22~~$34 million, or ~~21%~~30%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019. The decrease~~2020. This is primarily due to ~~fewer~~a significant reduction in engine events and heavy checks, ~~as compared~~coupled with lower spend on components and materials, on reduced utilization of our aircraft. Further contributing to the prior year, as well as lower power-by-the-hour expense on reduced third quarter utilization of covered aircraft. These decreases were offset by penalties accrued for failure to meet minimum obligations under certain contracts and costs incurredyear-over-year decline is a reduction in ~~the temporary grounding of certain aircraft, although we are currently~~project spend, which was largely halted in ~~negotiations with these service providers with respect to these penalties.~~March 2020.

33We expect increased aircraft maintenance expense in the second quarter as we return capacity and increase utilization of our aircraft.

Landing fees and other rentals

Landing fees and other rentals decreased by ~~$34~~$2 million, or ~~24%~~2%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019~~2020 on a ~~45%~~30% decrease in departures. Decreased departure-related costs were largely offset by rate increases at many of our hub airports.

We expect landing fees and other rentals to increase in the second quarter as we increase capacity and departures on increased rates at many of our hub airports, and due to a renegotiated lease at our largest airport hub, Seattle-Tacoma International Airport.

Contracted Services

Contracted services decreased by ~~$36~~$21 million, or ~~50%~~29%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019~~2020 driven primarily by decreased departures and passengers as compared to the prior-year period as a result of the COVID-19 pandemic.

Selling Expense

Selling expense decreased by ~~$53~~$22 million, or ~~69%~~40%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019,~~2020, primarily driven by a significant reduction in distribution costs and credit card commissions. Reduced marketing spend and sponsorship costs also contributed to the year-over-year decline given the renegotiation of certain contracts.

We anticipate increased selling expense in the second quarter consistent with increased bookings as demand for air travel grows.

Food and Beverage Service

Food and beverage service decreased by ~~$43~~$26 million, or ~~75%~~53%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019.~~2020. This decrease is consistent with the overall reduction in revenue passengers as compared to the prior-year period, as well as ~~the temporary closure of the majority of our airport lounges and~~ temporary elimination of buy-on-board service.

We expect food and beverage service to increase in the second quarter as we increase service offerings onboard our aircraft.

Third-party Regional Carrier Expense

Third-party regional carrier expense, which represents payments made to SkyWest under our CPA, decreased by ~~$13~~$7 million, or ~~31%~~19%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019.~~2020. The reduction in expense is primarily due to a ~~11% reduction~~pass through of CARES Act PSP funding received in ~~departures flown by~~the first quarter to offset SkyWest ~~as compared to the prior-year period, a reduction in departure-related contractual rates,~~pilot and ~~the elimination of PenAir flying.~~

flight attendant wages and benefits.

Special Items - Impairment and other charges

We recorded impairment and other charges of ~~$121~~$18 million in the ~~third~~first quarter of ~~2020,~~2021, consisting of costs associated with leased aircraft that have been retired and removed from the ~~impairment for ten owned Airbus aircraft which are expected to be retired prior~~operating fleet but not yet returned to the ~~end of their originally anticipated useful life, eight of which have been permanently parked.~~lessor.

Special Items - Restructuring charges

We recorded restructuring charges of ~~$322~~$11 million in the ~~third~~first quarter of ~~2020 relating to the right-sizing of our workforce~~2021 for pilots on incentive lines as a result of ~~decreased demand~~delayed recalls beyond what was anticipated at December 31, 2020 due to training limitations and capacity stemming from the COVID-19 pandemic. Charges are primarily comprised of wages for those pilots and mechanics on incentive leaves, ongoing medical benefit coverage, and lump-sum termination payouts.other factors.

ADDITIONAL SEGMENT INFORMATION

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

Mainline

Mainline recorded a ~~pretax~~pre-tax loss of ~~$463~~$444 million in the ~~third~~first quarter of ~~2020,~~2021, compared to a ~~pretax profit~~pre-tax loss of ~~$378~~$85 million in the ~~third~~first quarter of ~~2019.~~2020. The ~~$841~~$359 million ~~shift to pretax~~incremental loss recorded was primarily driven by a ~~$1.4 billion~~$728 million decrease in Passenger revenues as a result of the COVID-19 pandemic, offset by a ~~$354~~$266 million decrease in non-fuel operating costs and a ~~$321~~$139 million decrease in economic fuel cost.

The decrease in Mainline passenger revenue for the ~~third~~first quarter of ~~2020~~2021 was primarily driven by a ~~78%~~52% decline in traffic on a ~~60%~~35% decrease in capacity. The overall decreases in both traffic and capacity were driven by the significant reduction in demand as a result of the COVID-19 pandemic.

Non-fuel operating expenses decreased significantly on cost savings driven by reduced variable costs on reduced capacity, as well as decreased wages and benefits expense from voluntary leaves of absence and reduced aircraft rent charges as a ~~reduction~~result of impairment recorded in ~~hours for management employees.~~2020. Lower raw fuel prices, combined with a ~~64%~~40% decrease in gallons consumed, drove the decline in Mainline fuel expense.

Regional

Regional operations generated a pretax loss of ~~$96~~$150 million in the ~~third~~first quarter of ~~2020,~~2021, compared to a pretax ~~profit~~loss of ~~$23~~$73 million in the ~~third~~first quarter of ~~2019.~~2020. The increase in the pretax loss was attributable to a ~~$183~~$91 million decline in operating revenues, partially offset by a ~~$37~~$10 million decrease in fuel costs and ~~an $27~~a $4 million decrease in non-fuel operating expenses.

Regional passenger revenue decreased ~~53%~~38% compared to the ~~third~~first quarter of ~~2019,~~2020, primarily driven by a ~~42%~~25% decline in traffic on a ~~12%~~4% decrease in capacity. The overall decrease in both traffic and capacity are driven by the significant reduction in demand as a result of the COVID-19 pandemic.

The decrease in non-fuel operating expenses is primarily due to the ~~12% decline in capacity, as well as a discontinuation~~pass through of ~~our partnership with PenAir for contract flying~~CARES Act PSP funding received in the ~~state of Alaska.~~

first quarter to offset SkyWest pilot and flight attendant wages and benefits.

Horizon

Horizon achieved a pretax profit of $11 million in ~~both~~ the ~~third~~first quarter of ~~2020 and~~2021 compared to $8 million in the ~~third~~first quarter of ~~2019.~~2020. Profit recorded by Horizon in the ~~third~~first quarter is primarily the result of incremental flying as a proportion of overall Air Group capacity as compared to the prior year. Horizon revenues are recorded based upon purchased capacity, and are not impacted by changes to ticket prices and customer demand. Horizon profit is also the result of continued significant cost reduction efforts implemented in response to the COVID-19 pandemic.

~~COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2020 TO NINE MONTHS ENDED SEPTEMBER 30, 2019~~

Our consolidated net loss for the nine months ended September 30, 2020 was $877 million, or $7.12 per diluted share, compared to net income of $588 million, or $4.74 per diluted share, for the nine months ended September 30, 2019.

Our adjusted net loss for the nine months ended September 30, 2020 was $940 million, or $7.63 per diluted share, compared to adjusted net income of $617 million, or $4.97 per diluted share, in the nine months ended September 30, 2019. The following tables reconcile our adjusted net income and adjusted diluted EPS to amounts as reported in accordance with GAAP:

Nine Months Ended September 30,
2020 2019
(in millions, except per share amounts) Dollars Diluted EPS Dollars Diluted EPS
Reported GAAP net income (loss) and diluted EPS $ (877) $ (7.12) $ 588 $ 4.74
Payroll support program grant wage offset (760) (6.16) — —
Mark-to-market fuel hedge adjustments — — (1) (0.01)
Special items - merger-related costs 5 0.04 39 0.31
Special items - impairment charges and other 350 2.84 — —
Special items - restructuring charges 322 2.61 — —
Income tax effect of reconciling items above 20 0.16 (9) (0.07)
Non-GAAP adjusted net income (loss) and diluted EPS $ (940) $ (7.63) $ 617 $ 4.97

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

Nine Months Ended September 30,
(in cents) 2020 2019 % Change
Consolidated:
CASM 14.33 ¢ 11.48 ¢ 25 %
Less the following components:
Payroll support program grant wage offset (2.77) — NM
Aircraft fuel, including hedging gains and losses 2.07 2.82 (27) %
Special items - merger-related costs 0.02 0.08 (75) %
Special items - impairment charges and other 1.27 — NM
Special items - restructuring charges 1.17 — NM
CASM excluding fuel and special items 12.57 ¢ 8.59 ¢ 46 %
Mainline:
CASM 13.56 ¢ 10.65 ¢ 27 %
Less the following components:
Payroll support program grant wage offset (2.89) — NM
Aircraft fuel, including hedging gains and losses 1.92 2.65 (28) %
Special items - merger-related costs 0.02 0.09 (78) %
Special items - impairment charges and other 1.24 — NM
Special items - restructuring charges 1.37 — NM
CASM excluding fuel and special items 11.90 ¢ 7.91 ¢ 50 %

~~OPERATING REVENUES~~

~~Total operating revenues decreased $3.8 billion, or 58%, during the first nine months of 2020 compared to the same period in 2019. The changes are summarized in the following table:~~

Nine Months Ended September 30,
(in millions) 2020 2019 % Change
Passenger revenue $ 2,362 $ 6,038 (61) %
Mileage Plan other revenue 266 346 (23) %
Cargo and other 130 169 (23) %
Total operating revenues $ 2,758 $ 6,553 (58) %

~~Passenger Revenue~~

On a consolidated basis, Passenger revenue for the first nine months of 2020 decreased by $3.7 billion, or 61%, on a 45% decrease in capacity, and a 26 point decrease in load factor. Decreased revenue year-over-year is primarily due to the near complete loss of demand due to the COVID-19 pandemic. Load factors and unit revenues in the first two months of 2020 were in-line with our original expectations. In March 2020, demand deteriorated at an unprecedented level, and in response we reduced April 2020 and May 2020 capacity to approximately 80% below prior year levels. Moderate recovery began in June 2020, however, resurgence of cases throughout the United States slowed that recovery in July 2020. Targeted promotions, coupled with continued growth of guest confidence in air travel, led to sequential revenue improvement in the third quarter. We expect that fourth quarter revenue will continue to show improvement, given the holiday travel season and reopening of Hawaii, however, revenues will remain well below 2019 levels.

~~Mileage Plan other revenue~~

On a consolidated basis, Mileage Plan other revenue decreased $80 million, or 23%, in the first nine months of 2020 compared to the first nine months of 2019, due largely to a reduction in purchased miles and decreased commissions received from our affinity card partner, consistent with fewer new affinity card holders in 2020 and an overall reduction in consumer spending.

~~Cargo and other~~

On a consolidated basis, Cargo and other revenue decreased $39 million, or 23%, in the first nine months of 2020 compared to the first nine months of 2019. The decrease is primarily due to reduced belly cargo activity driven by the schedule reductions for passenger aircraft, as well as continued capacity limitations in our freighters. We expect that our cargo revenues will continue to be negatively impacted in the fourth quarter due to ongoing capacity reductions.

~~OPERATING EXPENSES~~

Total operating expenses decreased $1.8 billion, or 31%, compared to the first nine months of 2019. 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) 2020 2019 % Change
Fuel expense $ 568 $ 1,408 (60) %
Non-fuel operating expenses, excluding special items 3,453 4,295 (20) %
Payroll support program grant wage offset (760) — NM
Special items - merger-related costs 5 39 (87) %
Special items - impairment charges and other 350 — NM
Special items - restructuring charges 322 — NM
Total operating expenses $ 3,938 $ 5,742 (31) %

~~Fuel Expense~~

~~Aircraft fuel expense decreased $840 million, or 60%, compared to the nine months ended September 30, 2019. The elements of the change are illustrated in the following table:~~

Nine Months Ended September 30,
2020 2019
(in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $ 553 $ 1.61 $ 1,397 $ 2.16
Losses on settled hedges 15 0.04 12 0.02
Consolidated economic fuel expense 568 1.65 $ 1,409 $ 2.18
Mark-to-market fuel hedge adjustments — — (1) —
GAAP fuel expense $ 568 $ 1.65 $ 1,408 $ 2.18
Fuel gallons 344 646

The raw fuel price per gallon decreased 25% due to lower West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil, as well as refining margins associated with the conversion of crude oil to jet fuel. The decrease in raw fuel price per gallon during the first nine months of 2020 was driven by a 26% decrease in crude oil prices and a 56% decrease in refining margins.

Losses recognized for hedges that settled in the first nine months of 2020 were $15 million, compared to losses of $12 million in the same period in 2019. These amounts represent cash received from settled hedges, offset by cash paid for premium expense.

~~We expect our economic fuel cost per gallon in the fourth quarter to range between $1.20 and $1.25 per gallon on current market West Coast jet fuel prices and trends.~~

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

Nine Months Ended September 30,
(in millions) 2020 2019 % Change
Wages and benefits $ 1,579 $ 1,732 (9) %
Variable incentive pay 65 125 (48) %
Aircraft maintenance 244 341 (28) %
Aircraft rent 229 247 (7) %
Landing fees and other rentals 323 388 (17) %
Contracted services 138 214 (36) %
Selling expenses 83 236 (65) %
Depreciation and amortization 320 317 1 %
Food and beverage service 70 159 (56) %
Third-party regional carrier expense 92 125 (26) %
Other 310 411 (25) %
Total non-fuel operating expenses, excluding special items $ 3,453 $ 4,295 (20) %

~~Wages and Benefits~~

~~Wages and benefits decreased during the first nine months of 2020 by $153 million, or 9%. The primary components of wages and benefits are shown in the following table:~~

Nine Months Ended September 30,
(in millions) 2020 2019 % Change
Wages $ 1,159 $ 1,305 (11) %
Pension—Defined benefit plans service cost 37 31 19 %
Defined contribution plans 96 100 (4) %
Medical and other benefits 205 203 1 %
Payroll taxes 82 93 (12) %
Total wages and benefits $ 1,579 $ 1,732 (9) %

Wages decreased $146 million, or 11%, on an 18% decrease in FTEs. The decrease is primarily due to voluntary leaves of absence accepted by nearly 7,000 employees in the second and third quarters, as well as reduction in executive pay and hours for management employees. These decreases were offset by increased wage rates following the mid-2019 ratification of new contracts for employees represented by the Aircraft Mechanics Fraternal Association and the International Association of Machinists.

For the full year, we expect wages and benefits will decline compared to the prior year as we reduce scheduled flying and executive salaries, and realize savings generated from our reduction in workforce necessary to align with our expectation of demand.

~~Variable Incentive Pay~~

Variable incentive pay expense decreased $60 million, or 48%, during the first nine months of 2020 as compared to the same period in 2019. The decrease is primarily due to the expectation that key financial metrics will not be achieved under the performance based pay program, offset by the recognition of nine months of expense for a supplemental incentive pay plan, which was approved in July 2020, and increased operational bonuses as compared to the prior year.

~~Aircraft Maintenance~~

Aircraft maintenance expense decreased by $97 million, or 28%, during the first nine months of 2020 compared to the same period in 2019. The decrease is primarily due to a significant reduction in engine events and heavy checks, as well as reduced power-by-the-hour expense on reduced utilization in covered aircraft, offset by penalties recorded for failure to meet contractual minimum obligations.

~~We expect full year aircraft maintenance expense to be lower than 2019 on reduced aircraft utilization and parking of certain aircraft.~~

~~Landing fees and other rentals~~

Landing fees and other rentals decreased by $65 million, or 17%, during the first nine months of 2020 compared to the same period in 2019, primarily due to a 39% decrease in departures, offset by increased rates at certain of our airports.

For the full year, we expect landing fees and other rentals to decrease as compared to 2019, however, not at the same rate as decreased departures. We expect to see continued rate increases at many of our airports, as well as negative net settlements to cover airport operating costs.

~~Contracted Services~~

Contracted services decreased by $76 million, or 36%, during the first nine months of 2020 compared to the same period in 2019. This decrease is primarily a result of reduced vendor spend directly correlating to reduced year-over-year departures and passengers as a result of the COVID-19 pandemic.

~~For the full year, we expect contracted services expense to be significantly lower than in 2019, given our ongoing cost reduction efforts and significant reduction in departures.~~

~~Selling Expense~~

Selling expense decreased by $153 million, or 65%, during the first nine months of 2020 compared to the same period in 2019, primarily driven by a significant reduction in distribution costs and credit card commissions. Reduced marketing spend and sponsorship costs given the continued delay in professional sports also contributed to the year-over-year decline.

~~We expect full year selling expense will decrease in-line with the reduction to revenue as a result of reduced distribution costs on lower bookings, as well as reduced sponsorship and marketing costs.~~

~~Food and beverage service~~

Food and beverage service decreased by $89 million, or 56%, during the first nine months of 2020 compared to the same period in 2019. This decrease is primarily due to the 62% decrease in revenue passengers as compared to the prior-year period, as well as the temporary closure of the majority of our airport lounges in the second quarter of 2020 and the temporary elimination of buy-on-board service.

~~We expect food and beverage service to decrease as compared to 2019, consistent with our expectation of reduced passengers throughout 2020.~~

~~Third-party Regional Carrier Expense~~

Third-party regional carrier expense, which represents payments made to SkyWest under our CPA, decreased $33 million, or 26%, during the first nine months of 2020 compared to the same period in 2019. The decrease is primarily due to a 14% decrease in SkyWest departures as compared to the prior year.

~~For the full year, we expect third-party regional carrier expense to be lower than 2019 due to decreased flying and reduced contractual rates.~~

~~Special Items—Merger-Related Costs~~

We recorded special items of $5 million in the first nine months of 2020 for merger-related costs associated with our acquisition of Virgin America, compared to $39 million in the first nine months of 2019. Costs incurred in the first nine months of 2020 are primarily comprised of certain technology integration costs. We expect 2020 will be the final year in which we incur integration related charges.

~~Special Items - Impairment and other charges~~

We recorded impairment and other charges of $350 million in the first nine months of 2020, driven by our current expectation of decreased future cash flows stemming from the COVID-19 pandemic. Impairment and other charges primarily consist of the write down to fair value for ten owned Airbus A320 aircraft identified for sale, the full write-down of the operating lease assets and related spare inventory and parts, as well as estimated lease return costs for certain leased Airbus aircraft which were permanently parked, the write-down of our owned Q400 fleet to fair value, and the full write-off of gate assets at Dallas Love Field.

~~Additional impairment charges may be recorded as we finalize our long-term fleet strategy.~~

~~Special Items - Restructuring charges~~

We recorded restructuring charges of $322 million in the first nine months of 2020 relating to the right-sizing of our workforce as a result of decreased demand and capacity stemming from the COVID-19 pandemic. Charges are primarily comprised of wages for those pilots and mechanics on incentive leaves, ongoing medical benefit coverage, and lump-sum termination payouts.

~~ADDITIONAL SEGMENT INFORMATION~~

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

~~Mainline~~

Mainline adjusted pretax loss was $1 billion in the first nine months of 2020, compared to pretax profit of $761 million in the same period in 2019. The $1.8 billion shift to pretax loss was driven by a $3.3 billion decrease in Mainline operating revenues, offset by a $768 million decrease in Mainline non-fuel operating expense and a $743 million decrease in Mainline fuel expense.

As compared to the prior year, lower Mainline revenues are primarily attributable to a 64% decrease in traffic and a 48 point decrease in capacity, driven by the significant reduction in demand as a result of the COVID-19 pandemic. Non-fuel operating expenses decreased significantly on cost savings driven by reduced variable costs on reduced capacity, as well as decreased wages and benefits expense from voluntary leaves of absence and a reduction in hours for management employees. Lower raw fuel prices, combined with decreased consumption from the reduction in flying, drove the decrease in Mainline fuel expense.

~~Regional~~

Regional operations generated a pretax loss of $298 million in the first nine months of 2020, compared to break-even in the first nine months of 2019. The shift to a pretax loss was attributable to a $486 million decrease in operating revenues, partially offset by a $98 million decrease in fuel costs and a $90 million decrease in non-fuel operating expenses. The decrease in regional revenues is primarily due to the 20% decrease in capacity, spurred by the COVID-19 pandemic.

~~Horizon~~

Horizon achieved a pretax profit of $27 million in the first nine months of 2020, compared to pretax profit of $33 million in the same period in 2019, primarily due to significant cost reduction efforts implemented in response to the COVID-19 pandemic.

4031

LIQUIDITY AND CAPITAL RESOURCES

As a result of the COVID-19 pandemic, we have taken, and will continue to take action to reduce costs, ~~increase~~manage liquidity and help to preserve the relative strength of our balance sheet. ~~From the onset of the pandemic,~~In 2020, we ~~have taken the following key~~took significant actions to enhance and preserve our ~~liquidity:~~liquidity, withstand depressed demand, and prepare for the recovery ahead. In 2021 we have achieved the following, which we believe positions us well for recovery:

•~~Obtained~~Generated positive operating cash flow of $167 million, bolstered by improved advance bookings for increased demand for air travel and inclusive of approximately ~~$1.1 billion in CARES Act funding to use towards payment~~$400 million of ~~wages and benefits;~~PSP grant funding;

•~~Executed an agreement with the U.S. Department of the Treasury~~Decreased adjusted net debt to ~~obtain up to $1.9~~$1.6 billion ~~through the CARES Act Loan program, secured by certain Mileage Plan assets and cash flow streams, 34 aircraft and 15 spare engines;~~at March 31, 2021 from $1.7 billion at December 31, 2020;

•~~Obtained $1.2 billion~~Received a combined $546 million of grants and loans from the U.S. Treasury under an extension of the PSP, and anticipate a supplemental payment of $80 million in ~~financing through the issuance of EETC, collateralized by 42 Boeing 737 aircraft and 19 Embraer E175 aircraft;~~late April under PSP 2;

•~~Raised $589~~Received notification from the U.S. Treasury that Alaska, Horizon and McGee are eligible to obtain an additional $584 million in ~~secured financing collateralized by 32 aircraft;~~incremental payroll support funding under a third round of the PSP;

•~~Drew $400~~Finalized a previously announced amendment to the existing aircraft purchase agreement with Boeing, which significantly reduced our 2021 capital commitments and provides slide rights to defer as much as $350 million of our commitments from ~~existing credit facilities;~~

•~~Suspended our share repurchase program and quarterly dividend indefinitely,~~2022 to later years, and;

•~~Reduced planned~~Maintained low capital expenditures, ~~by nearly $550~~which are expected to range between $150 million ~~for 2020,~~to $200 million during 2021, including ~~suspension~~renegotiated timing of pre-delivery payments and deferral of non-essential capital projects.

Although we have no plans to access equity markets at this time, we believe our equity would be of high interest to investors. ~~The liquidity raised from these financings, coupled with~~Alaska also has access to $1.8 billion in additional funding made available under the ~~availability of additional liquidity~~CARES Act loan program, although there currently is no expectation that we will draw on those funds.

As the business continues to recover and ~~our meaningful cost reductions have provided the Company with confidence in our ability~~eventually returns to withstand the depressed demand and prepare for the recovery ahead. Despite the significant amount of debt raised, our adjusted net debt is flat as compared to the end of 2019. We will also continue to execute additional cost restructuring initiatives in an effort to transition from a cash-burn focus towardsprofitability, reducing outstanding debt and ~~repairing~~strengthening our balance sheet will be a high priority. Based on our expectations about the recovery ahead, we expect to generate cash flow from operations of $450 million to $550 million in the second quarter including funds received as part of the CARES Act PSP.

We believe that our current cash and marketable securities balance, combined with available sources of liquidity, will be sufficient to fund our operations and meet our debt payment obligations, and to remain in compliance with the financial debt covenants in existing financing arrangements for the foreseeable future.

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


(in millions)	(in millions)	September 30, 2020			December 31, 2019			Change	(in millions)	March 31, 2021			December 31, 2020			Change
Cash and marketable securities	Cash and marketable securities	$	3,759		$	1,521		147 %	Cash and marketable securities	$	3,549		$	3,346		6 %
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	75		%	22		%	53 pts	Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	130		%	94		%	36 pts
Total debt	Total debt	3,822			1,499			155 %	Total debt	3,571			3,495			2 %
Shareholders’ equity	Shareholders’ equity	$	3,454		$	4,331		(20)%	Shareholders’ equity	$	2,875		$	2,988		(4)%

Debt-to-capitalization, adjusted for operating leases
(in millions) September 30, 2020 December 31, 2019 Change
Long-term debt, net of current portion $ 2,672 $ 1,264 111%
Capitalized operating leases 1,603 1,708 (6)%
COVID-19 related borrowings(a)
769 — NM
Adjusted debt, net of current portion of long-term debt $ 5,044 $ 2,972 70%
Shareholders' equity 3,454 4,331 (20)%
Total invested capital $ 8,498 $ 7,303 16%
Debt-to-capitalization, including operating leases 59 % 41 % 18 pts


Debt-to-capitalization, adjusted for operating leases
(in millions)	March 31, 2021			December 31, 2020			Change
Long-term debt, net of current portion	$	2,325		$	2,357		(1)%
Capitalized operating leases	1,554			1,558			—%
COVID-19 related borrowings(a)	788			734			7%
Adjusted debt, net of current portion of long-term debt	$	4,667		$	4,649		—%
Shareholders' equity	2,875			2,988			(4)%
Total invested capital	$	7,542		$	7,637		(1)%

Debt-to-capitalization, including operating leases	62		%	61		%	1 pt

(a)To best reflect our leverage, ~~at September 30, 2020,~~ we included the short-term borrowings stemming from the COVID-19 pandemic in the above calculation, although these borrowings are classified as current in the condensed consolidated balance sheets.


Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent	Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent					Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent
(in millions)	(in millions)	September 30, 2020		December 31, 2019		(in millions)	March 31, 2021		December 31, 2020
Current portion of long-term debt	Current portion of long-term debt	$	1,150	$	235	Current portion of long-term debt	$	1,246	$	1,138
Current portion of operating lease liabilities	Current portion of operating lease liabilities	283		269		Current portion of operating lease liabilities	271		290
Long-term debt, net of current portion	Long-term debt, net of current portion	2,672		1,264		Long-term debt, net of current portion	2,325		2,357
Long-term operating lease liabilities, net of current portion	Long-term operating lease liabilities, net of current portion	1,320		1,439		Long-term operating lease liabilities, net of current portion	1,283		1,268
Total adjusted debt	Total adjusted debt	5,425		3,207		Total adjusted debt	5,125		5,053
Less: Cash and marketable securities	Less: Cash and marketable securities	(3,759)		(1,521)		Less: Cash and marketable securities	(3,549)		(3,346)
Adjusted net debt	Adjusted net debt	$	1,666	$	1,686	Adjusted net debt	$	1,576	$	1,707

(in millions)	(in millions)	Last Twelve Months Ended September 30, 2020		Last Twelve Months Ended December 31, 2019		(in millions)	Twelve Months Ended March 31, 2021		Twelve Months Ended December 31, 2020
GAAP Operating Income(a)		$	(928)	$	1,063
GAAP Operating Loss(a)						GAAP Operating Loss(a)	$	(1,615)	$	(1,775)
Adjusted for:	Adjusted for:					Adjusted for:
Special items		(78)		44
Payroll Support Program grant wage offset and special items						Payroll Support Program grant wage offset and special items	(474)		71
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(5)		(6)		Mark-to-market fuel hedge adjustments	(39)		(8)
Depreciation and amortization	Depreciation and amortization	426		423		Depreciation and amortization	409		420
Aircraft rent	Aircraft rent	313		331		Aircraft rent	280		299
EBITDAR	EBITDAR	$	(272)	$	1,855	EBITDAR	$	(1,439)	$	(993)
Adjusted net debt to EBITDAR	Adjusted net debt to EBITDAR	(6.1x)		0.9x		Adjusted net debt to EBITDAR	(1.1x)		(1.7x)

(a)Operating ~~income~~loss 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 ~~Used in~~Provided by Operating Activities

For the first ~~nine~~three months of ~~2020,~~2021, net cash provided by operating activities was ~~$116~~$167 million, compared to ~~$1.4 billion~~$33 million during the same period in ~~2019.~~2020. The ~~$1.3 billion decrease~~$134 million increase in our operating cash flows is primarily attributable to a ~~$793~~$101 million ~~decline~~improvement to net loss, aided by the receipt and recognition of $403 million in ~~net income, net of non-cash special items for impairment and workforce reduction. The decrease~~PSP grant funding made available by the U.S. Treasury. Additionally, improvement in our operating cash flows is ~~also~~ due to increased advanced bookings and significant ~~cash~~reduction in refund activity ~~and a decline in advance bookings as~~when compared to the ~~same period in the prior year, all as a result~~first quarter of ~~the COVID-19 pandemic.~~2020.

Cash Used in Investing Activities

Cash used in investing activities was ~~$767~~$543 million during the first ~~nine~~three months of ~~2020,~~2021, compared to ~~$708~~$127 million during the same period of ~~2019.~~2020. The increase to cash used in investing activities is primarily due to an increase in net purchases of marketable securities, which were ~~$572~~$511 million in the first ~~nine~~three months of ~~2020,~~2021, compared to ~~$218~~$16 million in the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. Increased net purchases is primarily driven by additional cash on hand from borrowings and the PSP program, which allowed the Company to invest additional funds. These increases were offset by ~~the postponement of~~reduced capital expenditures in ~~2020~~2021 as a result of ~~the COVID-19 pandemic.~~

postponing non-critical capital expenditures beginning in March 2020.

Cash ~~Used in~~Provided by Financing Activities

Cash from financing activities was ~~$2.3 billion~~$82 million during the first ~~nine~~three months of ~~2020~~2021 compared to cash ~~used for~~provided by financing activities of ~~$538~~$684 million during the same period in ~~2019.~~2020. During the first ~~nine~~three months of ~~2020,~~2021, we had proceeds from debt issuances of ~~$2.6 billion, including funding from the EETC,~~$189 million, primarily a result of the loan portion of the proceeds from the ~~PSP and $135 million drawn on the~~ CARES Act ~~secured term loan.~~PSP, compared to $825 million issued in 2020 in response to the COVID-19 pandemic. These proceeds were partially offset by debt payments of ~~$238 million, dividend payments totaling $45 million, and $31 million in common stock repurchases.~~$115 million.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Aircraft Commitments

As of ~~September 30, 2020,~~March 31, 2021, we have firm orders to purchase 3554 aircraft, and firm commitments to lease 13 aircraft. Alaska also has ~~cancelable~~cancellable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2024 through ~~2026. We could incur a loss~~2027. At this time, we do not expect to take delivery of ~~pre-delivery payments and credits as a cancellation fee.~~these 30 Airbus aircraft. Alaska also has options to acquire ~~37 B737~~52 B737-9 MAX aircraft with deliveries from ~~2021~~2023 through ~~2024,~~2026, and Horizon has options to acquire 30 E175 aircraft with deliveries from 2022 through 2024. In addition to the 32 E175 aircraft currently operated by SkyWest in our regional fleet, Alaska has options in future periods to add regional capacity by having SkyWest operate up to eight more E175 aircraft. Options will be exercised only if we believe return on invested capital targets can be met over the long term.

~~Given the drastically reduced demand for air travel as a result of the COVID-19 pandemic, we are currently evaluating~~

The following table summarizes our overall fleet strategy and long-term plan. We are also in the process of negotiating with aircraft manufacturers and lessors to optimize timing of fleet activity. It is probable that the current outlook as stated below will change significantly. This table represents anticipated fleet ~~activity~~count by year, as of ~~September 30, 2020:~~March 31, 2021:


		Actual Fleet	Anticipated Fleet Activity						Actual Fleet	Anticipated Fleet Activity(a)
Aircraft	Aircraft	September 30, 2020	2020 Additions	2020 Removals	December 31, 2020	2021 Changes	December 31, 2021	Aircraft	March 31, 2021	2021 Additions	2021 Removals	Dec 31, 2021	2022 Changes	Dec 31, 2022	2023 Changes	Dec 31, 2023
B737 Freighters	B737 Freighters	3	—	—	3	—	3	B737 Freighters	3	—	—	3	—	3	—	3
B737-700	B737-700	11	—	—	11	—	11	B737-700	11	—	—	11	—	11	—	11
B737-800	B737-800	61	—	—	61	—	61	B737-800	61	—	—	61	—	61	—	61
B737-900	B737-900	12	—	—	12	—	12	B737-900	12	—	—	12	—	12	—	12
B737-900ER	B737-900ER	79	—	—	79	—	79	B737-900ER	79	—	—	79	—	79	—	79
B737 MAX9(a)		—	3	—	3	15	18
B737-9 MAX								B737-9 MAX	4	8	—	12	31	43	13	56
A320(b)	A320(b)	41	—	—	41	(7)	34	A320(b)	21	—	—	21	(8)	13	(13)	—
A321neo	A321neo	10	—	—	10	—	10	A321neo	10	—	—	10	—	10	—	10
Total Mainline Fleet	Total Mainline Fleet	217	3	—	220	8	228	Total Mainline Fleet	201	8	—	209	23	232	—	232
Q400 operated by Horizon(c)	Q400 operated by Horizon(c)	32	—	—	32	—	32	Q400 operated by Horizon(c)	32	—	—	32	—	32	—	32
E175 operated by Horizon(c)	E175 operated by Horizon(c)	30	—	—	30	—	30	E175 operated by Horizon(c)	30	—	—	30	—	30	3	33
E175 operated by third party(c)	E175 operated by third party(c)	32	—	—	32	—	32	E175 operated by third party(c)	32	—	—	32	—	32	—	32
Total Regional Fleet	Total Regional Fleet	94	—	—	94	—	94	Total Regional Fleet	94	—	—	94	—	94	3	97
Total	Total	311	3	—	314	8	322	Total	295	8	—	303	23	326	3	329

(a)~~The three B737 MAX9 aircraft previously reflected in 2020 were originally contracted for delivery in 2019~~Anticipated fleet activity reflects intended early retirement and ~~delayed due to the MAX grounding, and~~extensions or replacement of certain leases, not all of which have been ~~shifted to 2020, but are not expected to enter revenue service until 2021. Seven B737 MAX9 deliveries originally~~ contracted ~~for 2020 have been shifted to 2021 based on our current estimate of expected delivery dates. The Company continues to discuss delivery timelines with Boeing.~~yet.

(b)Actual fleet at ~~September 30, 2020,~~March 31, 2021, excluding 20 Airbus aircraft permanently parked in response to COVID-19 capacity reductions.

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

For future firm orders and option exercises, we may finance the aircraft through cash flow from operations, long-term debt, or lease arrangements.

Fuel Hedge Positions

All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases. With call options, we are hedged against volatile crude oil price increases. During a period of decline in crude oil prices, we only forfeit cash previously paid for hedge premiums. We typically hedge up to 50% of our expected consumption. However, given the sharp decline in demand and our capacity resulting from the COVID-19 pandemic, we are currently overhedged relative to our target of 50% of consumption through the remainder of 2020. Our crude oil positions are as follows:


		Approximate Gallons Hedged (in millions)	Weighted-Average Crude Oil Price per Barrel	Average Premium Cost per Barrel		Approximate Gallons Hedged (in millions)	Weighted-Average Crude Oil Price per Barrel	Average Premium Cost per Barrel

Fourth Quarter 2020		90	$64	$2
Full Year 2020		90	$64	$2
First Quarter 2021		60	$62	$2

Second Quarter 2021	Second Quarter 2021	65	$60	$2	Second Quarter 2021	80	$59	$2
Third Quarter 2021	Third Quarter 2021	55	$56	$2	Third Quarter 2021	100	$60	$2
Fourth Quarter 2021	Fourth Quarter 2021	35	$50	$3	Fourth Quarter 2021	70	$59	$3
Full Year 2021		215	$58	$2
Remainder of 2021					Remainder of 2021	250	$59	$2
First Quarter 2022	First Quarter 2022	15	$51	$3	First Quarter 2022	40	$59	$3
Second Quarter 2022					Second Quarter 2022	35	$61	$3
Third Quarter 2022					Third Quarter 2022	15	$67	$4
Full Year 2022	Full Year 2022	15	$51	$3	Full Year 2022	90	$61	$3

Contractual Obligations

The following table provides a summary of our contractual obligations as of ~~September 30, 2020.~~March 31, 2021. For agreements with variable terms, amounts included reflect our minimum obligations.


(in millions)	(in millions)	Remainder of 2020		2021		2022		2023		2024		Beyond 2024		Total		(in millions)	Remainder of 2021		2022		2023		2024		2025		Beyond 2025		Total
Current and long-term debt obligations	Current and long-term debt obligations	$	73	$	1,201	$	393	$	357	$	265	$	1,568	$	3,857	Current and long-term debt obligations	$	659	$	796	$	334	$	240	$	396	$	1,179	$	3,604
Aircraft lease commitments(a)	Aircraft lease commitments(a)	88		310		276		219		166		679		1,738		Aircraft lease commitments(a)	246		280		219		167		159		633		1,704
Facility lease commitments	Facility lease commitments	3		9		8		7		7		84		118		Facility lease commitments	8		10		9		8		6		87		128
Aircraft maintenance deposits		7		35		45		24		6		2		119
Aircraft purchase commitments (a)		343		549		333		192		21		25		1,463
Interest obligations (b)		16		118		88		75		63		153		513
Other obligations (c)		39		181		185		190		197		910		1,702
Aircraft-related commitments(b)																Aircraft-related commitments(b)	111		1,325		681		183		15		12		2,327

Interest obligations (c)																Interest obligations (c)	67		86		71		61		55		151		491
Other obligations (d)																Other obligations (d)	135		184		189		196		197		898		1,799
Total	Total	$	569	$	2,403	$	1,328	$	1,064	$	725	$	3,421	$	9,510	Total	$	1,226	$	2,681	$	1,503	$	855	$	828	$	2,960	$	10,053

(a)~~Although the Company has contractual obligations~~Future minimum lease payments for ~~purchase~~aircraft includes commitments ~~in 2020, informal agreements~~for aircraft which have been ~~reached with aircraft manufacturers to defer payments beyond 2020.~~removed from operating service, as we have remaining obligation under existing terms.

(b)Includes non-cancelable contractual commitments for aircraft and engines, buyer furnished equipment, and contractual aircraft maintenance obligations.

(c)For variable-rate debt, future obligations are shown above using ~~forecasted~~ interest rates forecast as of ~~September 30, 2020.~~March 31, 2021.

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

During the nine months ended September 30, 2020, the Company renegotiated scheduled payments with certain lessors and vendor partners, including the reduction of minimum obligations. The Company has also deferred 2020 aircraft payments, including those related to the B737 MAX9, to periods beyond 2020. Discussions remain ongoing with aircraft manufacturers and lessors to optimize the timing of aircraft deliveries and lease returns.

Credit Card Agreements

We have agreements with a number of credit card companies to process the sale of tickets and other services. Under these agreements, there are material adverse change clauses that, if triggered, could result in the credit card companies holding back a reserve from our credit card receivables. Under one such agreement, we could be required to maintain a reserve if our credit rating is downgraded to or below a rating specified by the agreement or our cash and marketable securities balance fell below $500 million. Under another such agreement, we could be required to maintain a reserve if our cash and marketable securities balance fell below $500 million. We are not currently required to maintain any reserve under these agreements, but if we were, our financial position and liquidity could be materially harmed.

Deferred Income Taxes

For federal income tax purposes, the majority of our assets are fully depreciated over a seven-year life using an accelerated depreciation method or bonus depreciation, if available. For financial reporting purposes, the majority of our assets are depreciated over 15 to 25 years to an estimated salvage value using the straight-line basis. This difference has created a significant deferred tax liability. At some point in the future the depreciation basis difference will reverse, including via asset impairment, potentially resulting in an increase in income taxes paid.

While it is possible that we could have material cash obligations for this deferred liability at some point in the future, we cannot estimate the timing of long-term cash flows with reasonable accuracy. Taxable income or loss and cash taxes payable and refundable in the short-term are impacted by many items, including the amount of book income generated (which can be volatile depending on revenue, demand for air travel and fuel prices), usage of net operating losses, whether "bonus depreciation" provisions are available, any future tax reform efforts at the federal level, as well as other legislative changes that are beyond our control. ~~Given our current expectation of operating losses for the remainder of the year, we expect to file for a cash refund for the 2020 tax year.~~

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to our critical accounting estimates during the three months ended ~~September 30, 2020.~~March 31, 2021. For information on 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, ~~2019 and Note 2, "COVID-19," for discussion about the estimates used in the Company's impairment analyses.~~2020.

GLOSSARY OF AIRLINE TERMS

Adjusted net debt - long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities

Adjusted net debt to EBITDAR - represents adjusted net debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or “capacity”; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus capitalized operating leases) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of settled fuel-hedging contracts in the period

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737, Airbus 320 family and Airbus 321neo jets and all associated revenues and costs

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan™ and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon ~~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 (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

4637


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, ~~2019.~~2020.

4738


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~September 30, 2020,~~March 31, 2021, 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, 2020.~~March 31, 2021.

Changes in Internal Control over Financial Reporting

~~In the quarter ended September 30, 2020, the Company implemented a new revenue accounting system, and updated the relevant control structure. Other than this implementation, there~~There have been no changes in the Company’s internal controls over financial reporting during the quarter ended ~~September 30, 2020,~~March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Our internal control over financial reporting is based on the 2013 framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework).

4839

PART II


ITEM 1. LEGAL PROCEEDINGS

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

In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as a successor-in-interest to Virgin America, responsible for various damages and penalties sought by the class members. OnIn February 4, 2019, the Court entered final judgment against Virgin America and Alaska Airlines in the amount of approximately $78 million. It did not award injunctive relief against Alaska Airlines. In February 2021, an appellate court reversed portions of the lower court decision and significantly reduced the judgment. The determination of total judgment has not been completed as of the date of this filing. Based on the facts and circumstances available, the Company believes the range of potential loss to be between $0 and $22 million, and has recorded $22 million on the condensed consolidated balance sheets. It did not award injunctive relief against Alaska Airlines.


ITEM 1A. RISK FACTORS

~~Except for the additional risk factors below, there~~There have been no material changes to the 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, ~~2019.~~

The global pandemic caused by COVID-19, and related measures implemented to combat its spread has had, and is expected to continue to have, a material adverse effect on the Company’s operations, financial position and liquidity.

In late 2019, an outbreak of novel coronavirus and its resulting disease (COVID-19) was detected in Wuhan, China. Since that time, COVID-19 has spread rapidly throughout the globe, including within the United States, where over one million cases have been positively diagnosed to date. In March 2020, the President of the United States declared a national emergency in response to the rapid spread, and all markets we serve have implemented some measure of travel restriction or stay-at-home order. These orders, combined with a wariness among the public of travel by aircraft due to perceived risk of infection, have resulted in an unprecedented decline in business and leisure travel. Cancellations of conventions and conferences, sporting events, concerts and other similar events, as well as the closure of popular tourist destinations, have contributed to this decline. This reduction in demand has materially negatively impacted our revenues and results of operations. As there is no indication of when these restrictions may be lifted or when demand may return, we expect to continue to see negative impacts from the COVID-19 pandemic on our business. Our operations could be negatively affected further if our employees are quarantined or sickened as a result of exposure to COVID-19, or if they are subject to additional governmental COVID-19 curfews or “shelter

in place” health orders or similar restrictions. Measures restricting the ability of our airport or inflight employees to come to work may cause a further deterioration in our service or operations, all of which could negatively affect our business.

In response to the pandemic, we have implemented and continue to implement a comprehensive strategy to mitigate the impacts on our business. This strategy may itself have negative impacts on our business and operations. One such action is the waiver of change fees and the ability to rebook travel for an extended period beyond standard rebooking terms. The loss of change fee revenue, combined with ongoing significant ticket cancellation activity, has adversely impacted our revenues and liquidity, and we expect such impacts to continue if governmental authorities extend existing travel restriction or stay-at-home orders or impose new orders or other restrictions intended to mitigate the spread of COVID-19, if businesses continue to restrict nonessential travel for their employees, or if the perceived risk of infection persists.

We have also implemented significant cash preservation and cost reduction strategies in response to the impacts of COVID-19. These strategies include, but are not limited to, capital expenditure reductions, hiring freezes, solicitation of voluntary leaves of absence and renegotiation of contractual terms and conditions. These measures, while helpful in slowing the rate at which we utilize our cash, are not expected to fully recover the loss of cash as a result of decreased ticket sales.

The Company may also experience significant supply chain disruptions as the COVID-19 pandemic may also adversely impact our suppliers. See “Item 1A., Risk Factors – We are dependent on a limited number of suppliers for aircraft and parts” of our Annual Report on Form 10-K for further discussion of risks related to the Company’s dependence on a limited number of suppliers. Should COVID-19 cause our limited vendors to have performance problems, reduced or ceased operations, or bankruptcies, or other events causing them to be unable to fulfill their commitments to us, our operations and business could be materially adversely affected.

At this time, we are unable to predict what impact the pandemic will have on future customer behavior. Future business travel may be impacted by widespread use of videoconferencing or the reduction of business travel budgets. Travelers may also become more reluctant in general to travel. In addition, the Company has incurred, and will continue to incur COVID-19 related costs for enhanced aircraft cleaning and additional procedures to limit transmission among employees and guests. Although these procedures are elective, the industry may in the future be subject to further cleaning and safety measures, which may be costly and take a significant amount of time to implement. These contingencies, individually and combined, could have a material adverse impact on our business. See “Item 1A., Risk Factors – Economic uncertainty, or another recession, would likely impact demand for our product and could harm our financial condition and results of operations.” of our Annual Report on Form 10-K for further discussion of the Company’s vulnerability to a general economic downturn or recession.

We have a significant amount of debt and fixed obligations and have incurred substantial incremental debt in response to the COVID-19 pandemic. These obligations could lead to liquidity restraints and have a material adverse effect on our financial position.

We carry, and will continue to carry for the foreseeable future, a substantial amount of debt related to aircraft lease and financing commitments, as well as non-cancelable commitments for airport and facility leases, maintenance and other obligations. In response to the COVID-19 pandemic, we have incurred and continue to seek new financing sources to fund our operations while demand remains at an unprecedented low level and for the unknown duration of any economic recovery period. Further, as we incur incremental obligations, issuers may require future debt agreements to contain more restrictive covenants or require additional collateral beyond historical market terms which may further restrict our ability to successfully access capital.

Although we have historically been able to generate sufficient cash flow from our operations to pay our debt and other fixed obligations when they become due, the impacts of COVID-19, or from other risks as described in “Item 1A., Risk Factors” of our Annual Report on Form 10-K, may prohibit us from doing so in the future and may adversely affect our overall liquidity.

~~We have accepted certain conditions by accepting funding under the payroll support program of the Coronavirus Aid, Relief and Economic Security (CARES) Act.~~

The CARES Act was signed into law on March 27, 2020, providing U.S. airlines and related businesses the ability to access liquidity in the form of grants, loans, loan guarantees and other investments by the U.S. government.

In the second quarter of 2020, the Company, Alaska Airlines, Horizon Air, and McGee entered agreements with the United States Department of the Treasury (Treasury) to secure approximately $1 billion of funding under the CARES Act payroll support program (PSP), of which $290 million is in the form of an unsecured senior term loan payable over ten years. PSP proceeds must be used exclusively for employee payroll and benefits expenses in accordance with the terms and conditions of the PSP agreements and the applicable provisions of the CARES Act.

In the third quarter of 2020, the Company and its airline subsidiaries entered agreements with the Treasury to obtain access to term loans of approximately $1.3 billion under the CARES Act loan program. Funds drawn under the loan program must be secured with assets owned by Alaska Airlines or Horizon Air. In October of 2020, Treasury informed the Company it would amend these agreements to increase the total amount of available secured loan funds to $1.9 billion.

To date, the Company has drawn $135 million from the loan facility, and may, at its option, borrow additional amounts in up to two subsequent borrowings until March 31, 2021. All proceeds must be used for general corporate purposes and operating expenses in accordance with the terms and conditions of the loan agreements and the applicable provisions of the CARES Act. All borrowings are pre-payable in whole or in part and are ultimately due and payable on September 26, 2025 (or March 28, 2025 with respect to the portion of the loan, if any, secured with certain loyalty program assets).

~~In addition to repayment commitments, we are subject to the following conditions under our CARES Act PSP and loan agreements:~~

•~~Alaska Airlines, Horizon Air and McGee had to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits for non-officer employees through September 30, 2020;~~

•Alaska Airlines and Horizon Air had to maintain DOT-prescribed levels of air service to markets they served as of March 1, 2020, through September 30, 2020 (subject to extension through March 1, 2022);

•~~The Company may not repurchase its common stock or pay dividends on its common stock until the later of September 30, 2021, or one year after secured loan funds are repaid;~~

•~~The Company must meet minimum liquidity and collateral coverage ratio requirements until the secured loan funds are repaid;~~

•Compensation and severance payments for officers and employees who earned more than $425,000 in total compensation in 2019 will be subject to maximum limitations through the later of March 24, 2022, or one year after secured loan funds are repaid; and

•~~The Company must maintain certain internal controls and records, and provide any additional reporting required by the U.S. government, relating to PSP and loan funding.~~

These conditions may adversely affect the Company’s profitability, our ability to negotiate favorable terms with loyalty partners, our attractiveness to investors, and our ability to compensate at market-competitive levels and retain key personnel.2020.


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

Historically, the Company purchased shares pursuant to a $1 billion repurchase plan authorized by the Board of Directors in August 2015. In March 2020, the Company suspended the share repurchase program indefinitely. When the repurchase program is restarted, the plan has remaining authorization to purchase an additional $456 million in shares.

On ~~September 30, 2020,~~February 19, 2021, the Company issued ~~the New PSP Warrant (as defined in Item 5. “Other Information” below)~~12,197 warrants to the United States Department of the Treasury (“Treasury”) in connection with the ~~payroll support program~~Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act, resulting in warrants to purchase a total of ~~915,929~~928,127 shares of the Company’s common stock that have been issued to Treasury in connection with the payroll support program. Each warrant is exercisable at a strike price of $31.61 per share of common stock and will expire on the fifth anniversary of the issue date of the warrant. Such warrants were issued to Treasury in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

~~In addition,~~On various dates between January 15, 2021 and April 29, 2021, the Company issued an aggregate of 305,499 warrants to the Treasury in connection with ~~increases on September 28, 2020 and October 30, 2020 in~~an extension of the ~~aggregate principal amount that may be borrowed from Treasury pursuant to the loan program~~PSP under the CARES Act, the Company may issue the Additional Loan Program Warrants (as defined in Item 5. “Other Information” below) to Treasury pursuant to the loan program, resulting in a maximum of 6,099,336 shares of the Company’s common stock subject to warrants that may be issuable in connection with the loan program. A warrant to purchase 427,080 shares of the Company’s common stock was issued on September 28, 2020. Additional warrants will be issued to Treasury in conjunction with each new borrowingmade available under the ~~A&R Loan Agreement (as defined in Item 5. “Other Information” below).~~Consolidated Appropriations Act, 2021. Each warrant is exercisable at a strike price of ~~$31.61~~$52.25 per share of common stock and will expire on the fifth anniversary of the issue date of the warrant. Such warrants were ~~or, when issued will be,~~ issued to Treasury in reliance on the exemption from registration provided by ~~Section 4(a)(2) of~~ the Securities Act.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. MINE SAFETY DISCLOSURES

None.


ITEM 5. OTHER INFORMATION

On September 30, 2020, the Company and Treasury agreed to an increase of $28.7 million in the payroll support available to Alaska Airlines and Horizon under the payroll support program (PSP) under the CARES Act, which resulted in an increase in the unsecured term loan borrowed from Treasury by approximately $8.6 million, bringing the total amount in unsecured funds borrowed from Treasury under the payroll support program for Alaska Airlines and Horizon to approximately $280.8 million (the “New Maximum Alaska Airlines Loan Amount”). As a result of this increase, on September 30, 2020, the Company issued additional warrants to Treasury to purchase 27,258 shares of the Company’s common stock (the “New PSP Warrant”).None.

In addition, on September 28, 2020, the Company, Alaska Airlines and Treasury agreed to an increase of $173 million in the aggregate principal amount that may be borrowed from Treasury pursuant to the loan program under the CARES Act, resulting in an initial aggregate lender commitment of $1,301 million. On October 30, 2020, the Company, Alaska Airlines and Treasury agreed to a further increase of $627 million in the aggregate principal amount that may be borrowed from Treasury pursuant to the loan program under the CARES Act, resulting in a new aggregate initial lender commitment of $1,928 million under such program. In connection with the new aggregate initial lender commitment, Alaska Airlines, as Borrower, the Company, as Parent, the guarantors party thereto from time to time, the Treasury, as the initial lender, and Bank of New York Mellon, as administrative agent and collateral agent, entered into a Restatement Agreement (the “Restatement Agreement”) to amend and restate the Loan and Guarantee Agreement (the “A&R Loan Agreement”), and Alaska Airlines, Horizon and, in each case, the guarantors party thereto each entered into an amended and restated Pledge and Security Agreement (together, the “A&R Pledge and Security Agreements”) relating to the collateral that secure the new aggregate initial lender commitment pursuant to the A&R Loan Agreement. As a result of the increases in the aggregate initial lender commitment, additional warrants to purchase 2,530,845 shares of the Common Stock are issuable by the Company to Treasury from time to time in connection with borrowings made pursuant to the A&R Loan Agreement (the “Additional Loan Program Warrants”), resulting in a maximum of 6,099,336 shares of the Company’s common stock subject to warrants that may be issuable in connection with the loan program.

On November 4, 2020, the Board of Directors (the “Board”) adopted resolutions (the “Resolutions”) pursuant to Section 204 of the General Corporation Law of the State of Delaware, which Resolutions ratify, confirm and approve the additional corporate actions taken on September 28, 2020, September 30, 2020 and October 30, 2020 as described above. Specifically, the Resolutions ratify, confirm and approve: (i) the New Maximum Alaska Airlines Loan Amount, the issuance to Treasury of the New PSP Warrant and the issuance of shares of the Company’s common stock upon exercise of the New PSP Warrant; and (ii) the New Initial Lender Commitment, including the execution, delivery and performance of the Restatement Agreement, the A&R Loan Agreement, the A&R Pledge and Security Agreements and all additional loan documents required to be executed or otherwise related to such agreements, as well as the transactions contemplated by such loan documents, the issuance to Treasury of the Additional Loan Program Warrants and the issuance of shares of the Company’s common stock upon exercise of the Additional Loan Program Warrants. Pursuant to the Resolutions, the Board ratified the foregoing corporate actions because it determined that such actions may not have been approved by the Board. Any claim that the defective corporate acts or putative stock ratified by the Board are void or voidable due to the failure of authorization specified in the Resolutions, or that the Delaware Court of Chancery should declare in its discretion that the ratification thereof not be effective or be effective only on certain conditions, must be brought within 120 days from the later of the validation effective time (which is November 4, 2020), and the giving of this notice (which is deemed given on the date that this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission).


ITEM 6. EXHIBITS

The following documents are filed as part of this report:

1.Exhibits: See Exhibit Index.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


ALASKA AIR GROUP, INC.

/s/ CHRISTOPHER M. BERRY
Christopher M. Berry
Vice President Finance and Controller

~~November 5, 2020~~May 6, 2021

5341

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
4.1
Pass Through Trust Agreement, dated as of July 2, 2020, between Alaska Airlines, Horizon and U.S. Bank Trust National Association. *
8-K July 6, 2020 4.1
4.2
Trust Supplement No. 2020-1A, dated as of July 2, 2020, between Alaska Airlines, Horizon and U.S. Bank Trust National Association, as Class A Trustee, to the Pass Through Trust Agreement dated as of July 2, 2020.
8-K July 6, 2020 4.2
4.3
Trust Supplement No. 2020-1B, dated as of July 2, 2020, between Alaska Airlines, Horizon and U.S. Bank Trust National Association, as Class B Trustee, to the Pass Through Trust Agreement dated as of July 2, 2020.
8-K July 6, 2020 4.3
4.4
Guarantee from Alaska Air Group, Inc., as Guarantor, to U.S. Bank Trust National Association, as Pass Through Trustee under the Class A Pass Through Trust Agreement, Pass Through Trustee under the Class B Pass Through Trust Agreement, Subordination Agent and Loan Trustee, dated as of July 2, 2020. *
8-K July 6, 2020 4.4
4.5
Guarantee from Alaska Airlines Inc., as Guarantor, to U.S. Bank Trust National Association, as Pass Through Trustee under the Class A Pass Through Trust Agreement, Pass Through Trustee under the Class B Pass Through Trust Agreement, Subordination Agent and Loan Trustee, dated as of July 2, 2020. *
8-K July 6, 2020 4.5
4.6
Guarantee from Horizon Air Industries, Inc., as Guarantor, to U.S. Bank Trust National Association, as Pass Through Trustee under the Class A Pass Through Trust Agreement, Pass Through Trustee under the Class B Pass Through Trust Agreement, Subordination Agent and Loan Trustee, dated as of July 2, 2020. *
8-K July 6, 2020 4.6
4.7
Form of Pass Through Trust Certificate, Series 2020-1A (included in Exhibit A to Exhibit 4.2)
8-K July 6, 2020 4.7
4.8
Form of Pass Through Trust Certificate, Series 2020-1B (included in Exhibit A to Exhibit 4.3)
8-K July 6, 2020 4.8
4.9
Intercreditor Agreement (2020-1), dated as of July 2, 2020, among U.S. Bank Trust National Association, as Trustee of the Alaska Air Pass Through Trust 2020-1A and the Alaska Air Pass Through Trust 2020-1B, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and U.S. Bank Trust National Association, as Subordination Agent. *
8-K July 6, 2020 4.9
4.10
Revolving Credit Agreement (2020-1A), dated as of July 2, 2020, between U.S. Bank Trust National Association, as Subordination Agent, as agent and trustee for the trustee of Alaska Air Pass Through Trust 2020-1A and as Borrower, and Crédit Agricole Corporate and Revolving Credit Agreement (2020-1A), dated as of July 2, 2020, between U.S. Bank Trust National Association, as Subordination Agent, as agent and trustee for the trustee of Alaska Air Pass Through Trust 2020-1A and as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider. *
8-K July 6, 2020 4.10
4.11
Revolving Credit Agreement (2020-1B), dated as of July 2, 2020, between U.S. Bank Trust National Association, as Subordination Agent, as agent and trustee for the trustee of Alaska Air Pass Through Trust 2020-1B and as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class B Liquidity Provider. *
8-K July 6, 2020 4.11
4.12
Participation Agreement (N568AS), dated as of July 2, 2020, among Alaska Airlines, U.S. Bank Trust National Association, as Pass Through Trustee under the Pass Through Trust Agreements, U.S. Bank Trust National Association, as Subordination Agent, U.S. Bank Trust National Association, as Loan Trustee, and U.S. Bank Trust National Association, in its individual capacity as set forth therein. *, **
8-K July 6, 2020 4.12
4.13
Indenture and Security Agreement (N568AS), dated as of July 2, 2020, between Alaska Airlines and U.S. Bank Trust National Association, as Loan Trustee. *, **
8-K July 6, 2020 4.13
4.14
Participation Agreement (N494AS), dated as of July 2, 2020, among Alaska Airlines, U.S. Bank Trust National Association, as Pass Through Trustee under the Pass Through Trust Agreements, U.S. Bank Trust National Association, as Subordination Agent, U.S. Bank Trust National Association, as Loan Trustee, and U.S. Bank Trust National Association, in its individual capacity as set forth therein. *, ***
8-K July 6, 2020 4.14
4.15
Indenture and Security Agreement (N494AS), dated as of July 2, 2020, between Alaska Airlines and U.S. Bank Trust National Association, as Loan Trustee. *, ***
8-K July 6, 2020 4.15
4.16
Participation Agreement (N626QX), dated as of July 2, 2020, among Horizon U.S. Bank Trust National Association, as Pass Through Trustee under the Pass Through Trust Agreements, U.S. Bank Trust National Association, as Subordination Agent, U.S. Bank Trust National Association, as Loan Trustee, and U.S. Bank Trust National Association, in its individual capacity as set forth therein. *, ****
8-K July 6, 2020 4.16
4.17
Indenture and Security Agreement (N626QX), dated as of July 2, 2020, between Horizon and U.S. Bank Trust National Association, as Loan Trustee. *, ****
8-K July 6, 2020 4.17

4.18
Form of Series 2020-1 Equipment Notes issued by Alaska Airlines (included in Exhibits 4.13 and 4.15).
8-K July 6, 2020 4.18
4.19
Form of Series 2020-1 Equipment Notes issued by Horizon (included in Exhibit 4.17).
8-K July 6, 2020 4.19
4.20†
Closing Date Warrant to Purchase Common Stock, dated September 28, 2020.
10-Q
4.21†
Warrant Agreement, dated September 28, 2020, between Alaska Air Group, Inc. and the United States Department of the Treasury
10-Q
4.22†
Alaska Airlines Loyalty Program Pledge and Security Agreement, dated as of September 28, 2020.*
10-Q
4.23†
Alaska Airlines Aircraft and Engine Pledge and Security Agreement dated as of September 28, 2020 .
10-Q
4.24†
Amended and Restated Horizon Aircraft, Engine, and Propeller Pledge and Security Agreement dated as of October 30, 2020 .
10-Q
10.1†
Loan and Guarantee Agreement, dated as of September 28, 2020, among Alaska Airlines, Inc., as Borrower, the Guarantors party hereto from time to time, the United States Department of the Treasury, and The Bank of New York Mellon, as Administrative Agent and Collateral Agent
10-Q
10.2†
Loan and Guarantee Agreement, dated as of September 28, 2020, and amended and restated as of October 30, 2020 among Alaska Airlines, Inc., as Borrower, the Guarantors party hereto from time to time, the United States Department of the Treasury, and The Bank of New York Mellon, as Administrative Agent and Collateral Agent
10-Q
10.3†
Restatement Agreement, dated as of October 30, 2020, to that certain Loan and Guarantee Agreement, dated as of September 28, 2020.
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
99.1
Schedule I**.
8-K July 6, 2020 99.1
99.2
Schedule II***.
8-K July 6, 2020 99.2
99.3
Schedule III****.
8-K July 6, 2020 99.3
101.INS† XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document.
101.SCH† XBRL Taxonomy Extension Schema Document
101.CAL† XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF† XBRL Taxonomy Extension Definition Linkbase Document
101.LAB† XBRL Taxonomy Extension Label Linkbase Document
101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document
† Filed herewith
* Certain confidential information contained in this exhibit, marked by [***], has been omitted because it (i) is not material and it (ii) would likely cause competitive harm to the Company if it were to be publicly disclosed.
** Pursuant to Instruction 2 to Item 601 of Regulation S-K, Exhibit 99.1 filed herewith contains a list of documents applicable to the Boeing 737-890 Aircraft (other than the Aircraft bearing U.S. Registration No. N568AS) that relate to the offering of the Alaska Air Pass Through Certificates, Series 2020-1, which documents are substantially identical to those which are filed herewith as Exhibits 4.12 and 4.13, except for the information identifying the Aircraft in question and various information relating to the principal amounts of the Equipment Notes relating to such Boeing 737-890 Aircraft. Exhibit 99.1 sets forth the details by which such documents differ from the corresponding representative sample of documents filed herewith as Exhibits 4.12 and 4.13 with respect to the Aircraft bearing U.S. Registration No. N568AS.
*** Pursuant to Instruction 2 to Item 601 of Regulation S-K, Exhibit 99.2 filed herewith contains a list of documents applicable to the Boeing 737-990ER Aircraft (other than the Aircraft bearing U.S. Registration No. N494AS) that relate to the offering of the Alaska Air Pass Through Certificates, Series 2020-1, which documents are substantially identical to those which are filed herewith as Exhibits 4.14 and 4.15, except for the information identifying the Aircraft in question and various information relating to the principal amounts of the Equipment Notes relating to such Boeing 737-990ER Aircraft. Exhibit 99.2 sets forth the details by which such documents differ from the corresponding representative sample of documents filed herewith as Exhibits 4.14 and 4.15 with respect to the Aircraft bearing U.S. Registration No. N494AS.

~~****~~

Pursuant to Instruction 2 to Item 601 of Regulation S-K, Exhibit 99.3 filed herewith contains a list of documents applicable to the Embraer E175 LR Aircraft (other than the Aircraft bearing U.S. Registration No. N626QX) that relate to the offering of the Alaska Air Pass Through Certificates, Series 2020-1, which documents are substantially identical to those which are filed herewith as Exhibits 4.16 and 4.17, except for the information identifying the Aircraft in question and various information relating to the principal amounts of the Equipment Notes relating to such Embraer E175 LR Aircraft. Exhibit 99.3 sets forth the details by which such documents differ from the corresponding representative sample of documents filed herewith as Exhibits 4.16 and 4.17 with respect to the Aircraft bearing U.S. Registration No. N626QX.

Exhibit
Number

Exhibit
Description

Form

Date of First Filing

Exhibit Number

3.1

Amended and Restated Certificate of Incorporation of Registrant

10-Q

August 3, 2017

3.1

10.1†*

Supplemental Agreement No. 15 to Purchase Agreement No. 3866 between the Boeing Company and Alaska Airlines, Inc.

10-Q

31.1†

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

10-Q

31.2†

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

10-Q

32.1†

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

10-Q

32.2†

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

10-Q

101.INS†

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

101.SCH†

XBRL Taxonomy Extension Schema Document

101.CAL†

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†

XBRL Taxonomy Extension Label Linkbase Document

101.PRE†

XBRL Taxonomy Extension Presentation Linkbase Document

†

Filed herewith

Certain confidential information contained in this exhibit, marked by [***], has been omitted because it (i) is not material and it (ii) would likely cause competitive harm to the Company if it were to be publicly disclosed.

5642


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	2621
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	4738
ITEM 4.	CONTROLS AND PROCEDURES	4839
PART II.	OTHER INFORMATION	4940
ITEM 1.	LEGAL PROCEEDINGS	4940
ITEM 1A.	RISK FACTORS	4940
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5140
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5141
ITEM 4.	MINE SAFETY DISCLOSURES	5241
ITEM 5.	OTHER INFORMATION	5241
ITEM 6.	EXHIBITS	5341
	SIGNATURES	5341


	Airbus Aircraft		Q400 Aircraft		Total Impairment
Aircraft and other flight equipment, net	$	132	$	58	$	190
Operating lease assets	62		0		62
Inventory and supplies - net	2		0		2
Prepaid expenses and other current assets	0		3		3
Other accrued liabilities	78		0		78
Total impairment charges - Long-lived assets	$	274	$	61	$	335


	Nine Months Ended September 30, 2020
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	1,860	$	502	$	0	$	0	$	2,362	$	0	$	2,362
CPA revenues	0		0		281		(281)		0		0		0
Mileage Plan other revenue	219		47		0		0		266		0		266
Cargo and other	128		0		0		2		130		0		130
Total Operating Revenues	2,207		549		281		(279)		2,758		0		2,758
Operating Expenses
Operating expenses, excluding fuel	2,777		727		238		(289)		3,453		(83)		3,370
Economic fuel	448		120		0		0		568		0		568
Total Operating Expenses	3,225		847		238		(289)		4,021		(83)		3,938
Nonoperating Income (Expense)
Interest income	33		0		0		(10)		23		0		23
Interest expense	(58)		0		(16)		10		(64)		0		(64)
Interest capitalized	8		0		0		0		8		0		8
Other - net	16		0		0		0		16		0		16
Total Nonoperating Income (Expense)	(1)		0		(16)		0		(17)		0		(17)
Income (Loss) Before Income Tax	$	(1,019)	$	(298)	$	27	$	10	$	(1,280)	$	83	$	(1,197)

	Nine Months Ended September 30, 2019
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	5,039	$	999	$	0	$	0	$	6,038	$	0	$	6,038
CPA revenues	0		0		340		(340)		0		0		0
Mileage Plan other revenue	312		34		0		0		346		0		346
Cargo and other	163		2		1		3		169		0		169
Total Operating Revenues	5,514		1035		341		(337)		6,553		0		6,553
Operating Expenses
Operating expenses, excluding fuel	3,545		817		286		(353)		4,295		39		4,334
Economic fuel	1,191		218		0		0		1,409		(1)		1,408
Total Operating Expenses	4,736		1,035		286		(353)		5,704		38		5,742
Nonoperating Income (Expense)
Interest income	50		0		0		(19)		31		0		31
Interest expense	(58)		0		(22)		20		(60)		0		(60)
Interest capitalized	11		0		0		0		11		0		11
Other - net	(20)		0		0		0		(20)		0		(20)
Total Nonoperating Income (Expense)	(17)		0		(22)		1		(38)		0		(38)
Income (Loss) Before Income Tax	$	761	$	0	$	33	$	17	$	811	$	(38)	$	773