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 March 31, ~~2021~~2022

☐ 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 ~~124,481,793~~126,091,824 common shares, par value $0.01, outstanding at April 30, ~~2021.~~2022.

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

ALASKA AIR GROUP, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, ~~2021~~2022

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, ~~2020.~~2021. Please consider our forward-looking statements in light of those risks as you read this report.

PART I


ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions)	(in millions)	March 31, 2021		December 31, 2020		(in millions)	March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,076	$	1,370	Cash and cash equivalents	$	628	$	470
Marketable securities	Marketable securities	2,473		1,976		Marketable securities	2,262		2,646
Total cash and marketable securities	Total cash and marketable securities	3,549		3,346		Total cash and marketable securities	2,890		3,116
Receivables - net	Receivables - net	517		480		Receivables - net	658		546
Inventories and supplies - net	Inventories and supplies - net	57		57		Inventories and supplies - net	78		62
Prepaid expenses, assets held-for-sale, and other current assets		161		123
Prepaid expenses and other current assets						Prepaid expenses and other current assets	348		196
Total Current Assets	Total Current Assets	4,284		4,006		Total Current Assets	3,974		3,920

Property and Equipment	Property and Equipment					Property and Equipment
Aircraft and other flight equipment	Aircraft and other flight equipment	7,933		7,761		Aircraft and other flight equipment	8,244		8,127
Other property and equipment	Other property and equipment	1,407		1,398		Other property and equipment	1,529		1,489
Deposits for future flight equipment	Deposits for future flight equipment	420		583		Deposits for future flight equipment	283		384
		9,760		9,742			10,056		10,000
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	3,616		3,531		Less accumulated depreciation and amortization	3,814		3,862
Total Property and Equipment - Net	Total Property and Equipment - Net	6,144		6,211		Total Property and Equipment - Net	6,242		6,138

Other Assets						Other Assets
Operating lease assets	Operating lease assets	1,423		1,400		Operating lease assets	1,541		1,453
Goodwill		1,943		1,943
Intangible assets - net		105		107
Goodwill and intangible assets						Goodwill and intangible assets	2,042		2,044
Other noncurrent assets	Other noncurrent assets	363		379		Other noncurrent assets	411		396
Other Assets		3,834		3,829
Total Other Assets						Total Other Assets	3,994		3,893

Total Assets	Total Assets	$	14,262	$	14,046	Total Assets	$	14,210	$	13,951

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions, except share amounts)	(in millions, except share amounts)	March 31, 2021		December 31, 2020		(in millions, except share amounts)	March 31, 2022		December 31, 2021
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	133	$	108	Accounts payable	$	299	$	200
Accrued wages, vacation and payroll taxes	Accrued wages, vacation and payroll taxes	456		527		Accrued wages, vacation and payroll taxes	367		457
Air traffic liability	Air traffic liability	1,297		1,073		Air traffic liability	1,643		1,163

Other accrued liabilities	Other accrued liabilities	541		424		Other accrued liabilities	659		625
Deferred revenue	Deferred revenue	818		733		Deferred revenue	1,038		912
Current portion of operating lease liabilities	Current portion of operating lease liabilities	271		290		Current portion of operating lease liabilities	272		268
Current portion of long-term debt	Current portion of long-term debt	1,246		1,138		Current portion of long-term debt	292		366
Total Current Liabilities	Total Current Liabilities	4,762		4,293		Total Current Liabilities	4,570		3,991

Long-Term Debt, Net of Current Portion	Long-Term Debt, Net of Current Portion	2,325		2,357		Long-Term Debt, Net of Current Portion	2,078		2,173

Noncurrent Liabilities	Noncurrent Liabilities					Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion	Long-term operating lease liabilities, net of current portion	1,283		1,268		Long-term operating lease liabilities, net of current portion	1,357		1,279
Deferred income taxes	Deferred income taxes	365		407		Deferred income taxes	509		578
Deferred revenue	Deferred revenue	1,507		1,544		Deferred revenue	1,394		1,446
Obligation for pension and postretirement medical benefits		663		665
Obligation for pension and post-retirement medical benefits						Obligation for pension and post-retirement medical benefits	302		305
Other liabilities	Other liabilities	482		524		Other liabilities	363		378
Total Noncurrent Liabilities						Total Noncurrent Liabilities	3,925		3,986
		4,300		4,408
Commitments and Contingencies		0		0
Commitments and Contingencies (Note 7)						Commitments and Contingencies (Note 7)	0		0

Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
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: 2021 - 133,792,045 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 124,442,101 shares; 2020 - 124,217,590 shares		1		1
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding						Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding	—		—
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 135,437,808 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,087,864 shares; 2021 - 125,905,864 shares						Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 135,437,808 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,087,864 shares; 2021 - 125,905,864 shares	1		1
Capital in excess of par value	Capital in excess of par value	409		391		Capital in excess of par value	503		494
Treasury stock (common), at cost: 2021 - 9,349,944 shares; 2020 - 9,349,944 shares		(674)		(674)
Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares						Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares	(674)		(674)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(494)		(494)		Accumulated other comprehensive loss	(292)		(262)
Retained earnings	Retained earnings	3,633		3,764		Retained earnings	4,099		4,242
		2,875		2,988			3,637		3,801
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	14,262	$	14,046	Total Liabilities and Shareholders' Equity	$	14,210	$	13,951

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
(in millions, except per share amounts)	(in millions, except per share amounts)	2021		2020			(in millions, except per share amounts)	2022		2021
Operating Revenues	Operating Revenues						Operating Revenues
Passenger revenue	Passenger revenue	$	659	$	1,481		Passenger revenue	$	1,511	$	659
Mileage Plan other revenue	Mileage Plan other revenue	94		109			Mileage Plan other revenue	112		94
Cargo and other	Cargo and other	44		46			Cargo and other	58		44
Total Operating Revenues	Total Operating Revenues	797		1,636			Total Operating Revenues	1,681		797
Operating Expenses	Operating Expenses						Operating Expenses
Wages and benefits	Wages and benefits	493		612			Wages and benefits	606		493
Variable incentive pay	Variable incentive pay	33		7			Variable incentive pay	36		33
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(411)		0			Payroll Support Program grant wage offset	—		(411)
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	203		384			Aircraft fuel, including hedging gains and losses	347		203
Aircraft maintenance	Aircraft maintenance	81		115			Aircraft maintenance	135		81
Aircraft rent	Aircraft rent	62		81			Aircraft rent	73		62
Landing fees and other rentals	Landing fees and other rentals	129		131			Landing fees and other rentals	138		129
Contracted services	Contracted services	51		72			Contracted services	78		51
Selling expenses	Selling expenses	33		55			Selling expenses	58		33
Depreciation and amortization	Depreciation and amortization	97		108			Depreciation and amortization	102		97
Food and beverage service	Food and beverage service	23		49			Food and beverage service	41		23
Third-party regional carrier expense	Third-party regional carrier expense	30		37			Third-party regional carrier expense	42		30
Other	Other	105		143			Other	152		105
Special items - impairment charges and other		18		160
Special items - fleet transition and related charges							Special items - fleet transition and related charges	75		18
Special items - restructuring charges	Special items - restructuring charges	11		0			Special items - restructuring charges	—		11
Special items - merger-related costs		0		3

Total Operating Expenses	Total Operating Expenses	958		1,957			Total Operating Expenses	1,883		958
Operating Loss	Operating Loss	(161)		(321)			Operating Loss	(202)		(161)
Nonoperating Income (Expense)

Non-operating Income (Expense)							Non-operating Income (Expense)
Interest income	Interest income	7		9			Interest income	7		7
Interest expense	Interest expense	(32)		(13)			Interest expense	(27)		(32)
Interest capitalized	Interest capitalized	3		3			Interest capitalized	2		3
Other - net	Other - net	10		5			Other - net	14		10
Total Nonoperating Income (Expense)		(12)		4
Total Non-operating Expense							Total Non-operating Expense	(4)		(12)
Loss Before Income Tax	Loss Before Income Tax	(173)		(317)			Loss Before Income Tax	(206)		(173)
Income tax benefit	Income tax benefit	(42)		(85)			Income tax benefit	(63)		(42)
Net Loss	Net Loss	$	(131)	$	(232)		Net Loss	$	(143)	$	(131)

Basic Loss Per Share:	Basic Loss Per Share:	$	(1.05)	$	(1.89)		Basic Loss Per Share:	$	(1.14)	$	(1.05)
Diluted Loss Per Share:	Diluted Loss Per Share:	$	(1.05)	$	(1.89)		Diluted Loss Per Share:	$	(1.14)	$	(1.05)
Shares used for computation:	Shares used for computation:						Shares used for computation:
Basic	Basic	124.299		122.818			Basic	125.984		124.299
Diluted	Diluted	124.299		122.818			Diluted	125.984		124.299

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)

Three Months Ended March 31,
(in millions) 2021 2020
Net Loss $ (131) $ (232)
Other Comprehensive Income (Loss):
Related to marketable securities:
Unrealized holding gain (loss) arising during the period (11) (1)
Reclassification of (gain) loss into Other - net nonoperating income (expense) (4) (3)
Income tax effect 3 1
Total (12) (3)
Related to employee benefit plans:
Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income 8 7
Income tax effect (2) (2)
Total 6 5
Related to interest rate derivative instruments:
Unrealized holding gain (loss) arising during the period 8 (25)
Reclassification of loss into Aircraft rent 0 1
Income tax effect (2) 5
Total 6 (19)
Other Comprehensive Income (Loss) 0 (17)
Comprehensive Loss $ (131) $ (249)


	Three Months Ended March 31,
(in millions)	2022		2021
Net Loss	$	(143)	$	(131)
Other comprehensive income (loss), net of tax
Marketable securities	(40)		(12)
Employee benefit plans	1		6
Interest rate derivative instruments	9		6
Total comprehensive loss, net	$	(173)	$	(131)

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 Loss		Retained Earnings		Total
Balances at December 31, 2020		124.217	$	1	$	391	$	(674)	$	(494)	$	3,764	$	2,988
Balances at December 31, 2021															Balances at December 31, 2021	125.906	$	1	$	494	$	(674)	$	(262)	$	4,242	$	3,801
Net loss	Net loss	—	—		—		—		—		(131)		(131)		Net loss	—	—		—		—		—		(143)		(143)
Other comprehensive income (loss)		—	—		—		—		0		—		0
Other comprehensive loss															Other comprehensive loss	—	—		—		—		(30)		—		(30)

Stock-based compensation	Stock-based compensation	—	—		12		—		—		—		12		Stock-based compensation	—	—		13		—		—		—		13
CARES Act warrant issuance		—	—		8		—		—		—		8

Stock issued under stock plans	Stock issued under stock plans	0.225	—		(2)		—		—		—		(2)		Stock issued under stock plans	0.182	—		(4)		—		—		—		(4)
Balances at March 31, 2021		124.442	$	1	$	409	$	(674)	$	(494)	$	3,633	$	2,875
Balances at March 31, 2022															Balances at March 31, 2022	126.088	$	1	$	503	$	(674)	$	(292)	$	4,099	$	3,637

(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 Loss		Retained Earnings		Total
Balances at December 31, 2020	124.217	$	1	$	391	$	(674)	$	(494)	$	3,764	$	2,988

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

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


Stock issued under stock plans	0.225	—		(2)		—		—		—		(2)
Balance at March 31, 2021	124.442	$	1	$	409	$	(674)	$	(494)	$	3,633	$	2,875

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Three Months Ended March 31,
(in millions)	2022		2021
Cash flows from operating activities:
Net Loss	$	(143)	$	(131)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	102		97
Stock-based compensation and other	5		12
Special items - fleet transition and related charges	75		18
Special items - restructuring charges	—		11
Changes in certain assets and liabilities:
Changes in deferred tax provision	(58)		(39)
Increase in accounts receivable	(112)		(37)
Increase in air traffic liability	480		224
Increase in deferred revenue	74		48

Other - net	(136)		(36)
Net cash provided by operating activities	287		167
Cash flows from investing activities:
Property and equipment additions:
Aircraft and aircraft purchase deposits	(207)		(3)
Other flight equipment	(24)		(11)
Other property and equipment	(57)		(13)
Total property and equipment additions, including capitalized interest	(288)		(27)
Purchases of marketable securities	(552)		(1,243)
Sales and maturities of marketable securities	880		732
Other investing activities	(1)		(5)
Net cash provided by (used in) investing activities	39		(543)
Cash flows from financing activities:
Proceeds from issuance of debt	—		189


Long-term debt payments	(170)		(115)
Other financing activities	2		8
Net cash provided by (used in) financing activities	(168)		82
Net increase (decrease) in cash, cash equivalents, and restricted cash	158		(294)
Cash, cash equivalents, and restricted cash at beginning of period	494		1,386
Cash, cash equivalents, and restricted cash at end of the period	$	652	$	1,092

Three Months Ended March 31,
(in millions) 2021 2020
Cash flows from operating activities:
Net Loss $ (131) $ (232)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 97 108
Stock-based compensation and other 12 9
Special items - impairment charges and other 18 160
Special items - restructuring charges 11 0
Changes in certain assets and liabilities:
Changes in deferred tax provision (39) (44)
Increase in air traffic liability 224 210
Increase in deferred revenue 48 33
Other - net (73) (211)
Net cash provided by operating activities 167 33
Cash flows from investing activities:
Property and equipment additions:
Aircraft and aircraft purchase deposits (3) (57)
Other flight equipment (11) (35)
Other property and equipment (13) (27)
Total property and equipment additions, including capitalized interest (27) (119)
Purchases of marketable securities (1,243) (527)
Sales and maturities of marketable securities 732 511
Other investing activities (5) 8
Net cash used in investing activities (543) (127)
Cash flows from financing activities:
Proceeds from issuance of debt 189 825
Common stock repurchases 0 (31)
Dividends paid 0 (45)
Long-term debt payments (115) (60)
Other financing activities 8 (5)
Net cash provided by financing activities 82 684
Net increase (decrease) in cash, cash equivalents, and restricted cash (294) 590
Cash, cash equivalents, and restricted cash at beginning of period 1,386 232
Cash, cash equivalents, and restricted cash at end of the period $ 1,092 $ 822
Cash paid during the period for:
Interest (net of amount capitalized) $ 50 $ 9
Income taxes 0 0
Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents $ 1,076 $ 811
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 $ 1,092 $ 822


	Three Months Ended March 31,
(in millions)	2022		2021

Cash paid during the period for:
Interest (net of amount capitalized)	$	35	$	50
Income taxes	—		—

Non-cash transactions:
Right-of-use assets acquired through operating leases	158		75

Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents	628		1,076
Restricted cash included in Prepaid expenses and other current assets	24		16
Total cash, cash equivalents, and restricted cash at end of the period	$	652	$	1,092

910

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, ~~2020.~~2021. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of March 31, ~~2021~~2022 and the results of operations for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. Such adjustments were of a normal recurring nature.

In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses, including impairment charges. Due to the impacts of the coronavirus (COVID-19) pandemic on the Company's business, these estimates and assumptions require more judgment than they would otherwise given the uncertainty of the future demand for air travel, among other considerations. Further, due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment and other factors, operating results for the three months ended March 31, ~~2021~~2022 are not necessarily indicative of operating results for the entire year.

NOTE 2. ~~COVID-19 PANDEMIC~~FLEET TRANSITION

The public health and economic crisis resulting from the outbreak of COVID-19 in the first quarter of 2020 continues to have a significant impact on the Company. Although the relaxation of restrictions by state and local governments and the rollout of vaccination programs have allowed for the return of some demand, passenger enplanements remain significantly below pre-pandemic levels. As a result, we continue to fly far less capacity than normal.

Beginning in 2020, the Company implemented 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 the three months ended March 31, 2021 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 total net charge recorded in 2020 for aircraft that were permanently parked amounted to $209 million. In the first quarter of ~~2021,~~2022, the Company announced plans to accelerate the transition of mainline operations to an all-Boeing 737 fleet. It also announced new plans to transition its regional operations to an all-Embraer fleet, retiring the Q400 fleet. Under these plans, Alaska will accelerate the retirement of its 30 operating Airbus A320 aircraft, with all expected to exit the fleet by early 2023. Alaska also operates ten A321neo aircraft, and is evaluating options to remove them from its fleet by the end of 2023, subject to agreement with counterparties. Also by the end of 2023, Horizon will exit its Q400 fleet, which includes 25 owned and 7 leased aircraft in operation at March 31, 2022.

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 not be recoverable. The decisions made by the Company to accelerate the retirement of the A320 and Q400 aircraft represented a significant adverse change in the extent in which those long-lived asset group would be used and an expectation that each asset group would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives. Indicators of impairment were not present for the A321neo aircraft as the majority of these aircraft have contractual lease return dates through 2029 to 2031, and are high-demand assets given their relative age and desirable technology.

For the purposes of recoverability testing, assets are grouped at the individual fleet level, which is the lowest level for which identifiable cash flows are available. The Company performed recoverability tests for the A320 and Q400 fleets, comparing the sum of estimated undiscounted future cash flows expected to be directly generated by each asset group to the asset group's carrying value. Future cash flows were estimated utilizing a combination of historical data, forecasted results, and anticipated use of the aircraft as of March 31, 2022. The analysis indicated the A320 fleet was recoverable and no impairment measurement was required. However, the Company will adjust the useful lives of the A320 aircraft and related assets to correspond with the anticipated cease-use date. The analysis indicated the Q400 fleet was not recoverable, and impairment measurement was required.

The Company evaluated the fair market value for the Q400 fleet using available market price information with adjustments based on quantitative and qualitative considerations. Based on this fair market value, the Company recorded an ~~additional $18~~impairment charge of $70 million, ~~in incremental costs associated~~reflecting the amount by which carrying value exceeded fair value of the owned Q400 aircraft. This amount is included within the "Special items - fleet transition and related charges" line within the consolidated statement of

operations. In conjunction with the impairment, the Company adjusted the useful lives of Q400 aircraft and related assets to correspond with the anticipated cease-use date.

The Company will continue to evaluate the need for further impairment or adjustments for owned and leased ~~aircraft that have been retired and removed from the operating~~long-lived assets as fleet ~~but not yet returned~~decisions evolve.

Other Special Items

In addition to the ~~lessor, which is classified as Special~~impairment described above, the Company recorded $5 million incremental expense to "Special items - ~~impairment charges~~fleet transition and ~~other on~~related charges" within the condensed consolidated statement of operations. ~~The lease return cost estimates are based on~~This includes adjustments related to the ~~Company's best estimate of~~outstanding accrual for costs to return leased aircraft asand a write-down of ~~the date~~right of ~~this filing.~~

~~Workforce restructuring~~

~~The Company continues~~use assets for two A320 aircraft for which return to ~~expect that demand will remain below pre-pandemic levels in 2021,~~service work was initiated but will continue rebuilding toward 2019 capacity levels. In response, the Company reduced its workforce in 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 voluntary leave program.

In 2020, as a result of these programs, the Company recorded $220 million in 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

~~Company 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 $11 million was recorded as Special items - restructuring charges in the condensed consolidated statement of operations during the three months ended March 31, 2021.

~~The table below presents a roll forward of the 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

The outstanding accrual is based on the Company's best estimate of capacity expectations and training schedules for 2021 as of the date of this filing. The Company will make the majority of the remaining cash payments associated with this liability in 2021. The balance is reflected in accrued wages, benefits and payroll taxes on the condensed consolidated balance sheet.

~~CARES Act Funding~~

During the 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 (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act, made available under the Consolidated Appropriations Act, 2021 (PSP 2). Under PSP 2 and the supporting agreements, Alaska and Horizon received 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 of 2021.

Of the amounts received during the three months ended March 31, 2021, $136 million represented unsecured debt and was recorded at par, and $8 million represented warrants recorded at fair value using a Black-Scholes model. Both were recorded on the condensed consolidated balance sheet. The remaining $403 million was recorded as grant proceeds. These amounts are inclusive of additional funding of $8 million made available to McGee under the first installment of PSP program (PSP 1). The grant is recorded as an offset to 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 wage offset. Included within this $411 million is approximately $8 million for employee retention credits as in the CARES Act. The Company expects to record any remaining wage offsets in the second quarter of 2021.

~~Total funds 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 for continuing to pay employee salaries, wages and benefits. Upon receipt of the funds issued under PSP 3, certain conditions and restrictions were extended. These conditions include, but are not limited to, refraining from conducting involuntary furloughs or reducing employee pay rates through September 30, 2021 and placing limits on executive compensation and severance through April 1, 2023. Alaska Air Group also agreed to continue the suspension of dividends and share repurchases until September 30, 2022.subsequently ceased.

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 2020, the Company eliminated ticket change fees indefinitely from its main cabin and first class fares.~~ Mileage Plan other revenue includes brand and marketing revenue from ~~our~~the co-branded credit card and other partners and certain interline frequent flyer revenue, net of commissions. Cargo and other revenue includes freight and mail revenue, and to a lesser extent, other ancillary revenue products such as lounge membership and certain commissions.

In the first quarter of 2022, the Company amended its Mileage Plan co-branded credit card agreement with Bank of America. The amendment extended the term of the agreement into 2030 and resulted in modifications to the separately identifiable performance obligations.

The Company disaggregates revenue by segment in Note 9. The level of detail within the Company’s condensed consolidated statements of operations, segment disclosures, and in this footnote depict the nature, amount, timing and uncertainty of revenue and how cash flows are affected by economic and other factors.

Passenger Ticket and Ancillary Services Revenue

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

Three Months Ended March 31,
2021 2020
Passenger ticket revenue, including ticket breakage and net of taxes and fees $ 525 $ 1,213
Passenger ancillary revenue 50 116
Mileage Plan passenger revenue 84 152
Total Passenger revenue $ 659 $ 1,481


	Three Months Ended March 31,
	2022		2021
Passenger ticket revenue, including ticket breakage, net of taxes and fees	$	1,232	$	525
Passenger ancillary revenue	91		50
Mileage Plan passenger revenue	188		84
Total Passenger revenue	$	1,511	$	659

Mileage ~~Plan™~~Plan Loyalty Program

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

Three Months Ended March 31,
2021 2020
Passenger revenue $ 84 $ 152
Mileage Plan other revenue 94 109
Total Mileage Plan revenue $ 178 $ 261


	Three Months Ended March 31,
	2022		2021
Passenger revenue	$	188	$	84
Mileage Plan other revenue	112		94
Total Mileage Plan revenue	$	300	$	178

Cargo and Other

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

Three Months Ended March 31,
2021 2020
Cargo revenue $ 27 $ 24
Other revenue 17 22
Total Cargo and other revenue $ 44 $ 46


	Three Months Ended March 31,
	2022		2021
Cargo revenue	$	29	$	27
Other revenue	29		17
Total Cargo and other revenue	$	58	$	44

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of~~$136~~ $390 million and ~~$489~~$136 million from the prior year-end air traffic liability balance for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

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. At March 31, 2021, such credits, which are included in the air traffic liability balance, totaled $484 million, net of breakage. In April 2021, the Company announced updated expiration terms for these credits, extending to December 31, 2021 for possible travel through November 30, 2022. Given the ongoing uncertainty in the return of demand for air 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~~affinity card partner and from other partners as mileage credits are sold until the payments are collected. The Company had ~~$52~~$108 million of such receivables as of March 31, ~~2021~~2022 and ~~$48~~$64 million as of December 31, ~~2020. Given the ongoing uncertainty around the return in~~2021. As demand for air travel remains unpredictable, the timing of recognition of mileage credits may differ from current assumptions.

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

Three Months Ended March 31,
2021 2020
Total Deferred Revenue balance at January 1 $ 2,277 $ 1,990
Travel miles and companion certificate redemption - Passenger revenue (84) (152)
Miles redeemed on partner airlines - Other revenue (4) (22)
Increase in liability for mileage credits issued 136 207
Total Deferred Revenue balance at March 31 $ 2,325 $ 2,023


	Three Months Ended March 31,
		2022		2021
Total Deferred revenue balance at January 1		$	2,358	$	2,277
Travel miles and companion certificate redemption - Passenger revenue		(176)		(84)
Miles redeemed on partner airlines - Other revenue		(9)		(4)
Increase in liability for mileage credits issued		259		136
Total Deferred revenue balance at March 31		$	2,432	$	2,325

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 March 31, ~~2021,~~2022, total cost basis for all marketable securities was ~~$2.5~~$2.3 billion. ~~There were no significant differences between~~In the ~~cost basis and~~three months ended March 31, 2022, fair value of marketable securities declined by $57 million primarily due to changes in interest rates. Management does not believe any ~~individual class~~unrealized losses are the result of ~~marketable securities.~~expected credit losses based on its evaluation of available information as of March 31, 2022.

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

March 31, 2021 December 31, 2020
Level 1 Level 2 Total Level 1 Level 2 Total
Assets
Marketable securities
U.S. government and agency securities $ 301 $ 0 $ 301 $ 407 $ 0 $ 407
Equity mutual funds 7 0 7 7 0 7
Foreign government bonds 0 19 19 0 20 20
Asset-backed securities 0 284 284 0 224 224
Mortgage-backed securities 0 293 293 0 290 290
Corporate notes and bonds 0 1,515 1,515 0 978 978
Municipal securities 0 54 54 0 50 50
Total Marketable securities 308 2,165 2,473 414 1,562 1,976
Derivative instruments
Fuel hedge - call options 0 41 41 0 15 15
Total Assets $ 308 $ 2,206 $ 2,514 $ 414 $ 1,577 $ 1,991
Liabilities
Derivative instruments
Interest rate swap agreements 0 (18) (18) 0 (25) (25)
Total Liabilities $ 0 $ (18) $ (18) $ 0 $ (25) $ (25)


	March 31, 2022						December 31, 2021
	Level 1		Level 2		Total		Level 1		Level 2		Total

Assets
Marketable securities
U.S. government and agency securities	$	416	$	—	$	416	$	331	$	—	$	331
Equity mutual funds	6		—		6		6		—		6
Foreign government bonds	—		29		29		—		38		38
Asset-backed securities	—		244		244		—		311		311
Mortgage-backed securities	—		190		190		—		232		232
Corporate notes and bonds	—		1,314		1,314		—		1,663		1,663
Municipal securities	—		63		63		—		65		65
Total Marketable securities	422		1,840		2,262		337		2,309		2,646
Derivative instruments
Fuel hedge - call options	—		203		203		—		81		81
Interest rate swap agreements	—		6		6		—		—		—
Total Assets	$	422	$	2,049	$	2,471	$	337	$	2,390	$	2,727

Liabilities
Derivative instruments

Interest rate swap agreements	—		(2)		(2)		—		(9)		(9)
Total Liabilities	$	—	$	(2)	$	(2)	$	—	$	(9)	$	(9)

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

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

The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in active markets or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts are 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 March 31, 2021.

Maturities for marketable securities (in millions):

March 31, 2021 Cost Basis Fair Value
Due in one year or less $ 1,158 $ 1,159
Due after one year through five years 1,231 1,246
Due after five years through 10 years 62 61
Total $ 2,451 $ 2,466


March 31, 2022	Cost Basis		Fair Value
Due in one year or less	$	628	$	626
Due after one year through five years	1,651		1,597
Due after five years	34		33

Total	$	2,313	$	2,256

As of March 31, 2022, $6 million of total marketable securities do not have a maturity date and are therefore excluded from the total fair value of maturities for marketable securities above.

Fair Value of Other Financial Instruments

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

Cash, 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: To estimate the fair value of all fixed-rate debt as of March 31, ~~2021,~~2022, 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, as it is estimated using observable inputs, while the estimated fair value of ~~$612~~$750 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as 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):

March 31, 2021 December 31, 2020
Total fixed-rate debt $ 1,728 $ 1,662
Estimated fair value $ 1,839 $ 1,778


	March 31, 2022		December 31, 2021


Total fixed-rate debt	$	1,752	$	1,821

Estimated fair value	$	1,770	$	1,919

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. ~~No material impairments were~~Refer to Note 2 for discussion regarding impairment charges recorded during the three months ended March 31, ~~2021.~~2022.

NOTE 5. LONG-TERM DEBT

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

March 31, 2021 December 31, 2020
Fixed-rate notes payable due through 2029 $ 186 $ 198
Fixed-rate PSP notes payable due through 2031 426 290
Fixed-rate EETC payable due through 2025 & 2027 1,116 1,174
Variable-rate notes payable due through 2029 1,876 1,866
Less debt issuance costs and unamortized debt discount (33) (33)
Total debt 3,571 3,495
Less current portion 1,246 1,138
Long-term debt, less current portion $ 2,325 $ 2,357
Weighted-average fixed-interest rate 4.0 % 4.3 %
Weighted-average variable-interest rate 1.7 % 1.9 %


	March 31, 2022			December 31, 2021
Fixed-rate notes payable due through 2029	$	150		$	163
Fixed-rate PSP notes payable due through 2031	600			600
Fixed-rate EETC payable due through 2025 & 2027	1,002			1,058
Variable-rate notes payable due through 2029	636			738
Less debt issuance costs	(18)			(20)
Total debt	2,370			2,539
Less current portion	292			366
Long-term debt, less current portion	$	2,078		$	2,173

Weighted-average fixed-interest rate	3.6		%	3.7		%
Weighted-average variable-interest rate	1.7		%	1.3		%

Approximately ~~$591~~$396 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at March 31, ~~2021,~~2022, resulting in an effective weighted-average interest rate for the full debt portfolio ~~to 3.1%~~of 3.3%.

During the three months ended March 31, ~~2021,~~2022, the Company ~~issued $189 million of debt, comprising of $136 million of unsecured loans from the PSP and a $54 million issuance of debt. Debt proceeds were offset by $115 million in~~made scheduled debt ~~payments.~~

~~The $426 million PSP notes are unsecured senior term loans with a 10-year term, bearing an interest rate~~payments 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 PSP notes are prepayable at par without penalty.~~

~~CARES Act~~

In 2020, the Company finalized an agreement with the Treasury to obtain up to $1.9 billion via a secured term loan facility. 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 30 aircraft and 15 spare engines.~~

As of 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 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.

$170 million.

Debt Maturity

At March 31, ~~2021~~2022, long-term debt principal payments for the next five years and thereafter are as follows (in millions):

Total
Remainder of 2021 $ 659
2022 796
2023 334
2024 240
2025 396
Thereafter 1,179
Total $ 3,604


	Total
Remainder of 2022	$	201
2023	334
2024	240
2025	261
2026	176
Thereafter	1,176
Total	$	2,388

Bank Lines of Credit

~~The Company~~Alaska has 3 credit facilities ~~with capacity~~ totaling ~~$461~~$486 million as of March 31, ~~2021.~~2022. One of the credit facilities for ~~$120~~$150 million expires in March ~~2022~~2025 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. ~~The~~A second credit facility for $250 million expires in June ~~2021~~2024 and is secured by aircraft. ~~These two~~Both facilities have variable interest rates based on LIBOR plus a specified margin. A third credit facility for ~~$91~~$86 million expires in June ~~2021~~2022 and is secured by ~~aircraft..~~aircraft.

The Company has an outstanding balance of $363 million on the first and second facilities, 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 alsoAlaska has secured letters of credit against the third ~~facility.~~facility, but has no plans to borrow using either of the other two facilities. All credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. ~~The Company~~Alaska was in compliance with this covenant at March 31, ~~2021.~~2022.

NOTE 6. EMPLOYEE BENEFIT PLANS

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

Three Months Ended March 31,
2021 2020
Service cost $ 13 $ 13
Pension expense included in Wages and benefits 13 13
Interest cost 14 19
Expected return on assets (31) (28)
Recognized actuarial loss 9 9
Pension expense included in Nonoperating Income (Expense) $ (8) $ 0


	Three Months Ended March 31,
	2022		2021
Service cost	$	11	$	13
Pension expense included in Wages and benefits	11		13

Interest cost	16		14
Expected return on assets	(32)		(31)

Recognized actuarial loss	2		9
Pension expense included in Nonoperating Income (Expense)	$	(14)	$	(8)

NOTE 7. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of March 31, ~~2021~~2022 (in millions):

Aircraft Commitments(a)
Capacity Purchase Agreements (b)
Remainder of 2021 $ 111 $ 124
2022 1,325 173
2023 681 178
2024 183 183
2025 15 188
Thereafter 12 877
Total $ 2,327 $ 1,723


	Aircraft Commitments(a)		Capacity Purchase Agreements (b)
Remainder of 2022	$	1,159	$	133
2023	1,781		182
2024	414		188
2025	111		194
2026	47		195
Thereafter	275		740
Total	$	3,787	$	1,632

(a)Includes non-cancelable contractual commitments for aircraft and engines, aircraft maintenance and parts management. Contractual commitments do not reflect the impact of the impending fleet transition. Option deliveries are excluded from minimum commitments until exercise.

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

Aircraft Commitments

Aircraft purchase commitments include non-cancelable contractual commitments for aircraft and engines. AsIn March 2022, Alaska amended its aircraft purchase agreement with Boeing, adding the 737-8 and 737-10 models to its existing order book of ~~March 31, 2021, Alaska had~~737-9 aircraft. The amended agreement also includes options to purchase additional aircraft with deliveries between 2024 and 2026. Details are outlined in the table below. Horizon also has commitments to purchase ~~51 B737-9 MAX~~12 Embraer E175 aircraft with ~~contracted~~ deliveries between ~~2021~~2022 and ~~2024.~~2025. Future minimum contractual payments for these aircraft ~~have been updated to~~ reflect the 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 2027. In addition, Alaska has options to purchase 52 B737-9 MAX aircraft, and Horizon has options to purchase 30 E175 aircraft. The cancelable purchase commitments and option payments are not reflected in the table above.


	Firm Orders	Options	Total
Aircraft Type	2022-2025	2024-2026	2022 - 2026
Boeing 737-8	10	—	10
Boeing 737-9	51	11	62
Boeing 737-10	6	41	47
Embraer E175	12	—	12
Total	79	52	131

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.~~judgment, again without awarding injunctive relief against Alaska. 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~~

Alaska is seeking ~~an appellate court~~a conclusive U.S. Supreme 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 provisions of 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~~case. If appeal efforts are unsuccessful, compliance with California and ~~agree with~~other states' laws may have an adverse impact on the Company's ~~other bases for appeal.~~operations and financial position.

~~In January 2019, a pilot filed a class action lawsuit seeking to represent all~~Like other U.S. airlines, 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.~~laws. 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.

NOTE 8. SHAREHOLDERS' EQUITY

Common Stock Repurchase

In August 2015, the Board of Directors authorized a $1 billion share repurchase program. ~~As of March 31, 2021, the~~The Company ~~has~~ repurchased 7.6 million shares for $544 million under this program. In March 2020, subject to restrictions under the Coronavirus Aid, Relief, and Economic Securities (CARES) Act, the Company suspended the share repurchase program indefinitely.

CARES Act Warrant ~~Issuance~~Issuances

As additional taxpayer protection required under ~~PSP 2, during~~ the ~~three months ended March 31, 2021~~Payroll Support Program (PSP) under the CARES Act, the Company granted the Treasury a total of ~~255,874~~1,455,438 warrants to purchase ~~Alaska Air Group (ALK)~~ALK common stock atin 2020 and 2021. An additional 427,080 warrants were issued in conjunction with a ~~strike price of $52.25, based~~draw on the ~~closing price on December 24,~~CARES Act Loan in 2020. ~~The~~These warrants are non-voting, freely transferable, may be settled as net shares or in cash at ~~Alaska's~~the Company's option, and have a five-year term.

The value of the warrants was estimated using a Black-Scholes option pricing model. The total fair value of all outstanding warrants was $30 million, recorded in stockholders' equity at issuance.

Total warrants outstanding are as follows as of 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
2022:


	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	305,499	52.25
PSP 3	221,812	66.39
Outstanding March 31, 2022	1,882,518

Subsequent to March 31, 2021, Alaska and Horizon received additional funding under PSP 2. As additional taxpayer protection, the Company granted 45,855 warrants to purchase ALK common stock at a strike price of $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 closing price on March 10, 2021. 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 term.

Accumulated other comprehensive loss

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

March 31, 2021 December 31, 2020
Related to marketable securities $ 11 $ 23
Related to employee benefit plans (492) (498)
Related to interest rate derivatives (13) (19)
Total $ (494) $ (494)


	Marketable Securities		Employee Benefit Plan		Interest Rate Derivatives		Total
Balance at December 31, 2021, net of tax effect of $83	$	(4)	$	(252)	$	(6)	$	(262)
Reclassifications into earnings, net of tax impact of $0	2		1		—		3
Change in value, net of tax impact of $10	(42)		—		9		(33)
Balance at March 31, 2022, net of tax effect of $93	$	(44)	$	(251)	$	3	$	(292)

Balance at December 31, 2020, net of tax effect of $160	$	23	$	(498)	$	(19)	$	(494)
Reclassifications into earnings, net of tax impact of $2	(4)		6		—		(2)
Change in value, net of tax impact of $(2)	(8)		—		6		2
Balance at March 31, 2021, net of tax effect of $160	$	11	$	(492)	$	(13)	$	(494)

Earnings (Loss) Per Share (EPS)

EPS is calculated by dividing net income by the average number of common shares outstanding plus the number of additional common shares that would have been outstanding assuming the exercise of in-the-money stock options, ~~and~~ restricted stock units, and warrants, using the treasury-stock method. Loss per share is calculated by dividing net loss by the average number of basic shares outstanding. For the three months ended March 31, ~~2021~~2022 and ~~2020,~~March 31, 2021, anti-dilutive shares excluded from the calculation of EPS were not material.

NOTE 9. OPERATING SEGMENT INFORMATION

Alaska Air Group has two operating 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~~and 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 three 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, Costa Rica, and ~~Costa Rica.~~Belize.

•Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. and Canada under 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.

Operating segment information is as follows (in millions):


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





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

	Three Months Ended March 31, 2021
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	506	$	153	$	—	$	—	$	659	$	—	$	659
CPA revenues	—		—		104		(104)		—		—		—
Mileage Plan other revenue	80		14		—		—		94		—		94
Cargo and other	44		—		—		—		44		—		44
Total Operating Revenues	630		167		104		(104)		797		—		797
Operating Expenses
Operating expenses, excluding fuel	893		265		88		(109)		1,137		(382)		755
Fuel expense	174		52		—		(1)		225		(22)		203
Total Operating Expenses	1,067		317		88		(110)		1,362		(404)		958





Non-operating Income (Expense)	(7)		—		(5)		—		(12)		—		(12)
Income (Loss) Before Income Tax	$	(444)	$	(150)	$	11	$	6	$	(577)	$	404	$	(173)

Three Months Ended March 31, 2021
Mainline Regional Horizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenues
Passenger revenues $ 506 $ 153 $ 0 $ 0 $ 659 $ 0 $ 659
CPA revenues 0 0 104 (104) 0 0 0
Mileage Plan other revenue 80 14 0 0 94 0 94
Cargo and other 44 — 0 0 44 0 44
Total Operating Revenues 630 167 104 (104) 797 0 797
Operating Expenses
Operating expenses, excluding fuel 893 265 88 (109) 1,137 (382) 755
Economic fuel 174 52 0 (1) 225 (22) 203
Total Operating Expenses 1,067 317 88 (110) 1,362 (404) 958
Nonoperating Income (Expense)
Interest income 7 0 0 0 7 0 7
Interest expense (27) 0 (5) 0 (32) 0 (32)
Interest capitalized 3 0 0 0 3 0 3
Other - net 10 0 0 0 10 0 10
Total Nonoperating Income (Expense) (7) 0 (5) 0 (12) 0 (12)
Income (Loss) Before Income Tax $ (444) $ (150) $ 11 $ 6 $ (577) $ 404 $ (173)
Three Months Ended March 31, 2020
Mainline Regional Horizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenues
Passenger revenues $ 1,234 $ 247 $ 0 $ 0 $ 1,481 $ 0 $ 1,481
CPA revenues 0 0 105 (105) 0 0 0
Mileage Plan other revenue 98 11 0 0 109 0 109
Cargo and other 44 0 0 2 46 0 46
Total Operating Revenues 1,376 258 105 (103) 1,636 0 1,636
Operating Expenses
Operating expenses, excluding fuel 1,159 269 92 (110) 1,410 163 1,573
Economic fuel 313 62 0 0 375 9 384
Total Operating Expenses 1,472 331 92 (110) 1,785 172 1,957
Nonoperating Income (Expense)
Interest income 14 0 0 (5) 9 0 9
Interest expense (12) 0 (5) 4 (13) 0 (13)
Interest capitalized 3 0 0 0 3 0 3
Other - net 6 0 0 (1) 5 0 5
Total Nonoperating Income (Expense) 11 0 (5) (2) 4 0 4
Income (Loss) Before Income Tax $ (85) $ (73) $ 8 $ 5 $ (145) $ (172) $ (317)

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

(b)The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges. ~~See Note A in the accompanying pages for further information.~~

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

Total assets were as follows (in millions):

March 31, 2021 December 31, 2020
Mainline $ 19,951 $ 19,754
Horizon 1,200 1,170
Consolidating & Other (6,889) (6,878)
Consolidated $ 14,262 $ 14,046


	March 31, 2022		December 31, 2021
Mainline	$	19,684	$	19,258
Horizon	1,125		1,212
Consolidating & Other	(6,599)		(6,519)
Consolidated	$	14,210	$	13,951


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, ~~2020.~~2021. This overview summarizes the MD&A, which includes the following sections:

•First Quarter Review—highlights from the first quarter of ~~2021~~2022 outlining some of the major events that ~~happened~~occurred during the period and how they affected our financial performance.

•Results of Operations—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the three months ended March 31, ~~2021.~~2022. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of the remainder of ~~2021.~~2022.

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

FIRST QUARTER REVIEW

Business Recovery and ~~Financial Outlook~~First Quarter Results

~~The COVID-19 pandemic continues~~We recorded a consolidated pretax loss for the first quarter of 2022 of $206 million, compared to ~~have~~ a ~~material impact on our business. However,~~pretax loss of $173 million in the first quarter of ~~2021~~2021. On an adjusted basis, we ~~began to see positive momentum toward recovery. Vaccine availability, coupled with~~reported a net loss for the relaxation of restrictions imposed by state and local governments helped to stimulate demand for air travel to 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 flowquarter of $167 million, ~~for~~compared to an adjusted net loss of $436 million in the ~~quarter.~~same period of 2021. We faced headwinds in January and February, with weaker demand and staffing challenges as a result of an outbreak of the omicron variant of COVID-19. As cases subsided and business and leisure demand rebounded, monthly operating revenues surpassed 2019 levels in the month of March, a first since the pandemic began.

~~During the first quarter of 2021,~~As we ~~also completed key milestones which will be instrumental~~ramp our operation back to flying 2019 capacity levels, we have seen increases to our ~~future success. On March 31, 2021, Alaska formally entered~~non-fuel operating expenses. Non-fuel operating expense, excluding special items, rose 28% over the ~~oneworld® alliance as the 14~~th ~~member airline. Entry into the alliance will move Alaska forward as a global airline and will provide~~prior year period, primarily driven by increased ~~connectivity and benefits for our guests and Mileage Plan members. This alliance,~~departure-related costs on 33% more capacity flown. Increased capacity, coupled with ~~our West Coast International Alliance with American, uniquely positions us for recovery through increased corporate travel and international connectivity.~~

~~Also~~a 24% increase in fuel cost per gallon, drove additional fuel expense of $144 million as compared to 2021. We also incurred special charges of $75 million in the first quarter of 2022 related to our fleet transition, compared to a special benefit of $382 million recorded in 2021 we finalized a previously announced deal with Boeing to restructure Alaska's aircraft purchase agreement and increase the number of firm aircraft deliveries. Under the terms of the agreement, Alaska will take delivery of 55 Boeing 737-9 MAX aircraft with options for an additional 52 planes. The deliveries secured under the Boeing agreement, as well as the 13 additional leased 737-9 MAX aircraftprimarily from Air Lease Corporation, provide Alaska 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 available under this agreement were delivered in the first quarter, with two entering revenue service in March.Payroll Support Program grant wage offsets.

See “

~~In 2021, guidance will be~~Results of Operations” below for further discussion of changes in revenues and operating expenses as compared to ~~2019 as we believe it provides meaningful indication~~2021, and our reconciliation of non-GAAP measures to the ~~pace and quality~~most directly comparable GAAP measure. A glossary of ~~recovery to pre-pandemic levels. For~~financial terms can be found at the second quarter, we are planning for capacity to be approximately 20% below the same period in 2019. We expect to see continued increases in passenger counts during the summer travel season and as more destinations relax restrictions and the vaccine rollout continues. As we have been measured in returning capacity and optimizing the aircraft gauge for flown routes, we anticipate second quarter load factors to range between 70% to 75%.end of this Item 2.

~~Our outlook,~~Environmental, Social and the guidance provided, is sensitive to health trends, the vaccine rollout, and regulations and restrictions imposed by state, local and federal authorities. Our plans for 2021 will be responsive to emerging information and the guidance we have 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 Next-Level Care to ensure they are safe and comfortable when they fly. These competitive advantages we have cultivated over many years will continue to serve us well in 2021 and beyond, and we are confident that we are prepared to meet the challenges ahead and that we will emerge from the pandemic a stronger and more resilient airline.

~~Sustainability~~Governance Updates

~~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~~Delivering on our ~~2025 goals, which include increased commitments towards~~ diversity, equity and inclusion ~~as well as expanded sustainability efforts. We have highlighted~~goals is critical to our ~~commitment and support for equity in education through a new 737-900ER livery designed~~long-term success. In the first quarter of 2022, we launched the Ascend Pilot Academy, in partnership with the ~~United Negro College Fund. Additionally,~~Hillsboro Aero Academy, which will provide aspiring pilots a simpler and more financially accessible path to become a pilot at Horizon. This academy will help make careers in ~~April 2021, we announced strengthened commitments to reduce our carbon footprint, including joining the Amazon Climate Pledge, which calls~~aviation possible for ~~reducing our carbon emissions to net-zero by 2040. In order to achieve this, we have identified specific areas~~a broader and more diverse population 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%.~~future pilots.

As a reflection of the importance of 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~~emissions target into our company-wide ~~performance-based pay program.~~Performance-Based Pay Plan, which is currently tracking to target achievement.

~~Financial Overview~~

Labor Update

~~Our consolidated pre-tax loss~~In April 2022, Alaska's dispatchers represented by the Transport Workers Union ratified an agreement that includes increased pay with added steps to ensure wage rates remain competitive, enhanced benefits, and streamlined training.

Outlook and Strategic Updates

As we look to the second quarter and remainder of the year, we have turned focus to our strategy for long-term sustainable growth. In the first quarter, ~~of 2021 was $173 million, compared~~we announced plans to accelerate our transition to a ~~pre-tax loss~~single fleet at Alaska, and revealed new plans to transition our regional operations to a single fleet by retiring our Q400 fleet by the end of ~~$317 million~~2023. Moving to single fleet at Alaska and Horizon strengthens our low cost, high productivity competitive advantage, and contributes to greater operational excellence. As part of the transition, we are also strategically upgauging our fleet as we backfill retired aircraft, supporting efficient growth and bringing with it more premium revenue opportunity.

In the first quarter, we announced a renewed co-brand credit card agreement with Bank of America extending to 2030. Throughout the pandemic, our loyalty program provided meaningful cash flow to our business, and has continued to grow in line with returning demand. The new agreement is expected to generate incremental cash flows from improved economics, while providing our guests with expanded benefits.

To support our growth plans, we are focused on staffing our airlines and delivering the operational excellence for which we are known. We faced challenges in the first quarter as the omicron variant caused disruptions in our pilot training throughput, which led to a shortage of ~~2020.~~ pilots as we entered the second quarter. In response, management has moderated second quarter capacity plans to maintain operational integrity, and now plans to fly capacity that is 6% to 9% below 2019 levels. Despite the drawdown in capacity, relative strength in the demand environment is expected to lift second quarter revenues to 5% to 8% above 2019 levels.

The ~~$144 million improvement is primarily driven by the $411 million wage offset from the extension of the Payroll Support Program of the CARES Act,~~guidance we have provided and our outlook more broadly are sensitive to health trends, as well as ~~lower wages~~regulations and ~~benefits~~restrictions imposed by state, local and ~~aircraft fuel due~~federal authorities. Our plans will be responsive to ~~decreased flight activity.~~emerging information and the guidance we have provided above is subject to greater uncertainty than we have historically experienced. As we leverage our network, Mileage Plan program, and fleet for growth, our people continue to focus on keeping costs low, running a strong operation, and building brand love as we go. These ~~benefits were offset by a decrease of $839 million~~are competitive advantages we have cultivated over many years that will continue to serve us well in ~~operating revenue, primarily a result of reduced demand for business~~2022 and ~~leisure travel during the 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.beyond.

RESULTS OF OPERATIONS

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

We believe disclosure of earnings excluding the impact of ~~the~~aircraft fuel, Payroll Support Program grant wage ~~offset,~~offsets and other 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~~other items (including the Payroll Support Program grant wage offset ~~impairment~~ and ~~restructuring charges and merger-related costs)~~other special items) 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~~other items, such as the Payroll Support Program grant wage offset ~~impairment~~ and ~~restructuring charges and merger-related costs,~~other special items, is one of the most important measures used by management and by ~~the Air Group~~our Board of Directors in assessing quarterly and annual cost performance.

•Adjusted income before income tax (and other items as specified in our plan documents) 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.

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

•Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of 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.

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 March 31,
2021 2020 Change
Consolidated Operating Statistics:(a)
Revenue passengers (000) 4,666 8,932 (47.8)%
RPMs (000,000) "traffic" 5,393 10,656 (49.4)%
ASMs (000,000) "capacity" 10,397 15,304 (32.1)%
Load factor 51.9% 69.6% (17.7) pts
Yield 12.22¢ 13.90¢ (12.1)%
RASM 7.67¢ 10.69¢ (28.3)%
CASM excluding fuel and special items(b)
10.93¢ 9.22¢ 18.5%
Economic fuel cost per gallon(b)
$1.79 $1.93 (7.3)%
Fuel gallons (000,000) 126 194 (35.1)%
ASMs per fuel gallon 82.4 78.9 4.4%
Average full-time equivalent employees (FTEs) 17,140 22,473 (23.7)%
Mainline Operating Statistics:
Revenue passengers (000) 3,151 6,675 (52.8)%
RPMs (000,000) "traffic" 4,589 9,582 (52.1)%
ASMs (000,000) "capacity" 8,853 13,697 (35.4)%
Load factor 51.8% 70.0% (18.2) pts
Yield 11.02¢ 12.88¢ (14.4)%
RASM 7.11¢ 10.05¢ (29.3)%
CASM excluding fuel and special items(b)
10.08¢ 8.46¢ 19.1%
Economic fuel cost per gallon(b)
$1.77 $1.92 (7.8)%
Fuel gallons (000,000) 98 163 (39.9)%
ASMs per fuel gallon 90.3 84.0 7.5%
Average FTEs 12,473 16,818 (25.8)%
Aircraft utilization 8.5 10.1 (15.8)%
Average aircraft stage length 1,303 1,306 (0.2)%
Operating fleet(d)
201 225 (24) a/c
Regional Operating Statistics:(c)
Revenue passengers (000) 1,515 2,257 (32.9)%
RPMs (000,000) "traffic" 804 1,074 (25.1)%
ASMs (000,000) "capacity" 1,544 1,607 (3.9)%
Load factor 52.1% 66.8% (14.7 pts)
Yield 19.04¢ 23.04¢ (17.4)%
RASM 10.84¢ 16.09¢ (32.6)%
Operating fleet 94 94 — a/c


	Three Months Ended March 31,
	2022	2021	Change
Consolidated Operating Statistics:(a)
Revenue passengers (000)	8,694	4,666	86.3%
RPMs (000,000) "traffic"	10,586	5,393	96.3%
ASMs (000,000) "capacity"	13,783	10,397	32.6%
Load factor	76.8%	51.9%	24.9 pts
Yield	14.27¢	12.22¢	16.8%
RASM	12.20¢	7.67¢	59.1%
CASM excluding fuel and special items(b)	10.61¢	10.93¢	(2.9)%
Economic fuel cost per gallon(b)	$2.62	$1.79	46.4%
Fuel gallons (000,000)	173	126	37.3%
ASMs per fuel gallon	79.9	82.4	(3.0)%
Average full-time equivalent employees (FTEs)	21,582	17,140	25.9%
Mainline Operating Statistics:
Revenue passengers (000)	6,566	3,151	108.4%
RPMs (000,000) "traffic"	9,512	4,589	107.3%
ASMs (000,000) "capacity"	12,387	8,853	39.9%
Load factor	76.8%	51.8%	25.0 pts
Yield	13.06¢	11.02¢	18.5%
RASM	11.30¢	7.11¢	58.9%
CASM excluding fuel and special items(b)	9.64¢	10.08¢	(4.4)%
Economic fuel cost per gallon(b)	$2.61	$1.77	47.5%
Fuel gallons (000,000)	146	98	49.0%
ASMs per fuel gallon	85.0	90.3	(5.9)%
Average FTEs	16,336	12,473	31.0%
Aircraft utilization	9.5	8.5	11.8%
Average aircraft stage length	1,334	1,303	2.4%
Operating fleet(d)	225	201	24 a/c
Regional Operating Statistics:(c)
Revenue passengers (000)	2,128	1,515	40.5%
RPMs (000,000) "traffic"	1,075	804	33.7%
ASMs (000,000) "capacity"	1,396	1,544	(9.6)%
Load factor	77.0%	52.1%	24.9 pts
Yield	24.96¢	19.04¢	31.1%
RASM	20.04¢	10.84¢	84.9%
Operating fleet(d)	98	94	4 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 all aircraft ~~permanently~~ removed from operating service, as well as new aircraft which have not yet entered operating service.

Given the unusual nature of 2021 and 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~~2022 to 2019.


FINANCIAL INFORMATION AND OPERATING STATISTICS - 2019 RESULTS (unaudited)
FINANCIAL INFORMATION AND OPERATING STATISTICS - 2022 Compared to 2019 (unaudited)								FINANCIAL INFORMATION AND OPERATING STATISTICS - 2022 Compared to 2019 (unaudited)
Alaska Air Group, Inc.	Alaska Air Group, Inc.							Alaska Air Group, Inc.

		Three Months Ended March 31,							Three Months Ended March 31,
		2021		2019		Change			2022		2019		Change
Passenger revenue	Passenger revenue	$	659	$	1,716	(62)	%	Passenger revenue	$	1,511	$	1,716	(12)	%
Mileage plan other revenue	Mileage plan other revenue	94		110		(15)	%	Mileage plan other revenue	112		110		2	%
Cargo and other	Cargo and other	44		50		(12)	%	Cargo and other	58		50		16	%
Total operating revenues	Total operating revenues	$	797	$	1,876	(58)	%	Total operating revenues	$	1,681	$	1,876	(10)	%

Operating expense, excluding fuel and special items	Operating expense, excluding fuel and special items	$	1,137	$	1,405	(19)	%	Operating expense, excluding fuel and special items	$	1461	$	1,405	4	%
Economic fuel		203		420		(52)	%
Aircraft fuel, including hedging gains and losses								Aircraft fuel, including hedging gains and losses	347		420		(17)	%
Special items	Special items	(382)		26		NM		Special items	75		26		NM
Total operating expenses	Total operating expenses	$	958	$	1,851	(48)	%	Total operating expenses	$	1,883	$	1,851	2	%

Total nonoperating expense		(12)		(19)		(37)	%
Total non-operating expense								Total non-operating expense	(4)		(19)		(79)	%
Income (loss) before income tax	Income (loss) before income tax	$	(173)	$	6	NM		Income (loss) before income tax	$	(206)	$	6	NM

Consolidated Operating Statistics(a):
Consolidated Operating Statistics:								Consolidated Operating Statistics:
Revenue passengers (000)	Revenue passengers (000)	4,666		10,417		(55)	%	Revenue passengers (000)	8,694		10,417		(17)	%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	5,393		12,449		(57)	%	RPMs (000,000) "traffic"	10,586		12,449		(15)	%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	10,397		15,508		(33)	%	ASMs (000,000) "capacity"	13,783		15,508		(11)	%
Load Factor	Load Factor	51.9%		80.3%		(28.4)	pts	Load Factor	76.8%		80.3%		(3.5)	pts
Yield	Yield	12.22¢		13.78¢		(11)	%	Yield	14.27¢		13.78¢		4	%
RASM	RASM	7.67¢		12.10¢		(37)	%	RASM	12.20¢		12.10¢		1	%
CASMex	CASMex	10.93¢		9.06¢		21	%	CASMex	10.61¢		9.06¢		17	%
FTEs	FTEs	17,140		21,832		(21)	%	FTEs	21,582		21,832		(1)	%

~~(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 MARCH 31, ~~2021~~2022 TO THREE MONTHS ENDED MARCH 31, ~~2020~~2021

Our consolidated net loss for the three months ended March 31, ~~2021~~2022 was ~~$131~~$143 million, or ~~$1.05~~$1.14 per share, compared to a net loss of ~~$232~~$131 million, or ~~$1.89~~$1.05 per share, for the three months ended March 31, ~~2020.~~2021.

Excluding the impact of ~~the Payroll Support Program grant wage offset,~~ special items and mark-to-market fuel hedge adjustments, our adjusted net loss for the first quarter of ~~2021~~2022 was ~~$436~~$167 million, or ~~$3.51~~$1.33 per share, compared to an adjusted net loss of ~~$102~~$436 million, or ~~$0.83~~$3.51 per share, in the first quarter of ~~2020.~~2021. The following ~~tables reconcile~~table reconciles our adjusted net loss per share (EPS) to amounts as reported in accordance with GAAP:


		Three Months Ended March 31,									Three Months Ended March 31,
		2021				2020					2022				2021
(in millions, except per share amounts)	(in millions, except per share amounts)	Dollars		EPS		Dollars		EPS		(in millions, except per share amounts)	Dollars		EPS		Dollars		EPS
GAAP net loss per share	GAAP net loss per share	$	(131)	$	(1.05)	$	(232)	$	(1.89)	GAAP net loss per share	$	(143)	$	(1.14)	$	(131)	$	(1.05)
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(411)		(3.31)		—		—		Payroll Support Program grant wage offset	—		—		(411)		(3.31)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(22)		(0.18)		9		0.07		Mark-to-market fuel hedge adjustments	(107)		(0.85)		(22)		(0.18)
Special items - impairment charges and other		18		0.14		160		1.30
Special items - fleet transition and related charges										Special items - fleet transition and related charges	75		0.60		18		0.14
Special items - restructuring charges	Special items - restructuring charges	11		0.09		—		—		Special items - restructuring charges	—		—		11		0.09
Special items - merger-related costs		—		—		3		0.03

Income tax effect of reconciling items above	Income tax effect of reconciling items above	99		0.80		(42)		(0.34)		Income tax effect of reconciling items above	8		0.06		99		0.80
Non-GAAP adjusted net loss per share	Non-GAAP adjusted net loss per share	$	(436)	$	(3.51)	$	(102)	$	(0.83)	Non-GAAP adjusted net loss per share	$	(167)	$	(1.33)	$	(436)	$	(3.51)

CASM excluding fuel and special items reconciliation is summarized below:

Three Months Ended March 31,
(in cents) 2021 2020 % Change
Consolidated:
CASM 9.21 ¢ 12.79 ¢ (28) %
Less the following components:
Payroll Support Program grant wage offset (3.95) — NM
Aircraft fuel, including hedging gains and losses 1.95 2.51 (22) %
Special items - impairment charges and other 0.17 1.04 (83.6)
Special items - restructuring charges 0.11 — NM
Special items - merger-related costs — 0.02 (100) %
CASM excluding fuel and special items 10.93 ¢ 9.22 ¢ 19 %
Mainline:
CASM 8.07 ¢ 11.55 ¢ (30) %
Less the following components:
Payroll Support Program grant wage offset (4.06) — NM
Aircraft fuel, including hedging gains and losses 1.72 2.35 (27) %
Special items - impairment charges and other 0.20 0.72 NM
Special items - restructuring charges 0.13 — NM
Special items - merger-related costs — 0.02 (100) %
CASM excluding fuel and special items 10.08 ¢ 8.46 ¢ 19 %


	Three Months Ended March 31,
(in cents)	2022		2021		% Change
Consolidated:
CASM	13.66	¢	9.21	¢	48	%
Less the following components:
Payroll Support Program grant wage offset	—		(3.95)		NM
Aircraft fuel, including hedging gains and losses	2.51		1.95		29	%
Special items - fleet transition and related charges	0.54		0.17		NM
Special items - restructuring charges	—		0.11		NM

CASM excluding fuel and special items	10.61	¢	10.93	¢	(3)	%

Mainline:
CASM	11.89	¢	8.07	¢	47	%
Less the following components:
Payroll Support Program grant wage offset	—		(4.06)		NM
Aircraft fuel, including hedging gains and losses	2.21		1.72		29	%

Special items - fleet transition and related charges	0.04		0.20		(80)	%
Special items - restructuring charges	—		0.13		NM

CASM excluding fuel and special items	9.64	¢	10.08	¢	(4)	%

OPERATING REVENUES

Total operating revenues ~~decreased $839~~increased $884 million, or ~~51%~~111%, during the first quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. The changes are summarized in the following table:

Three Months Ended March 31,
(in millions) 2021 2020 % Change
Passenger revenue $ 659 $ 1,481 (56) %
Mileage Plan other revenue 94 109 (14) %
Cargo and other 44 46 (4) %
Total operating revenues $ 797 $ 1,636 (51) %


	Three Months Ended March 31,
(in millions)	2022		2021		% Change
Passenger revenue	$	1,511	$	659	129	%
Mileage Plan other revenue	112		94		19	%
Cargo and other	58		44		32	%
Total operating revenues	$	1,681	$	797	111	%

Passenger Revenue

On a consolidated basis, Passenger revenue for the first quarter of ~~2021 decreased~~2022 increased by ~~$822~~$852 million, or ~~56%~~129%, onprimarily driven by a ~~49% decline~~significant increase in passenger traffic and bolstered by a ~~12% decrease~~17% improvement in ~~yield. Although~~ticket yields. January and February 2022 results were negatively impacted by the omicron variant; however, surging demand ~~remains depressed due to the COVID-19 pandemic, which impacted revenues beginning~~ in March ~~2020, we began~~by both business and leisure travelers drove meaningful improvements 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.year-over-year results.

We expect to see continued growth to Passenger revenue ~~improvement, primarily~~as we progress through 2022 driven by ~~leisure travelers, in the second quarter.~~high demand and increased capacity.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue ~~decreased $15~~increased by $18 million, or ~~14%~~19%, as compared to the same prior-year period. The change is largely due to an increase in commissions from our bank card partners driven by our new co-branded credit card agreement and increased consumer spending and new card acquisitions.

We expect to see increases to Mileage Plan other revenue for the remainder of 2022, driven by higher commissions from the new co-branded credit card agreement.

Cargo and other

On a consolidated basis, Cargo and other revenue for the first quarter of 2022 increased by $14 million, or 32%, as compared to the same prior-year period ~~largely due~~as our dedicated freighters were running below full capacity in the first quarter of 2021. Additional departures also provided incremental belly cargo activity in the first quarter of 2022 compared with the prior year.

We expect to ~~a reduction in awards~~see increases to cargo and other revenue for the remainder of 2022, driven by ~~Alaska Mileage Plan members redeemed on other airlines, coupled with a reduction in commissions from our bank card partners.~~increased belly cargo activity as we increase scheduled departures.

OPERATING EXPENSES

Total operating expenses ~~decreased $999~~increased $925 million, or ~~51%~~97%, compared to the first quarter of ~~2020.~~2021. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:

Three Months Ended March 31,
(in millions) 2021 2020 % Change
Fuel expense $ 203 $ 384 (47) %
Non-fuel operating expenses, excluding special items 1,137 1,410 (19) %
Payroll Support Program grant wage offset (411) — NM
Special items - impairment charges and other 18 160 (89) %
Special items - restructuring charges 11 — NM
Special items - merger-related costs — (3) (100) %
Total operating expenses $ 958 $ 1,957 (51) %


	Three Months Ended March 31,
(in millions)	2022		2021		% Change
Fuel expense	$	347	$	203	71	%
Non-fuel operating expenses, excluding special items	1,461		1,137		28	%
Payroll Support Program grant wage offset	—		(411)		NM
Special items - fleet transition and related charges	75		18		NM
Special items - restructuring charges	—		11		NM

Total operating expenses	$	1,883	$	958	97	%

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 $181~~increased $144 million, or ~~47%~~71%, compared to the first quarter of ~~2020.~~2021. The elements of the change are illustrated in the following table:

Three Months Ended March 31,
2021 2020
(in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $ 222 $ 1.77 $ 370 $ 1.91
Losses on settled hedges 3 0.02 5 0.02
Consolidated economic fuel expense 225 1.79 $ 375 $ 1.93
Mark-to-market fuel hedge adjustments (22) (0.18) 9 0.05
GAAP fuel expense $ 203 $ 1.61 $ 384 $ 1.98
Fuel gallons 126 194


	Three Months Ended March 31,
	2022				2021
(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	$	504	$	2.91	$	222	$	1.77
(Gain)/loss on settled hedges	(50)		(0.29)		3		0.02
Consolidated economic fuel expense	$	454	$	2.62	$	225	$	1.79
Mark-to-market fuel hedge adjustments	(107)		(0.62)		(22)		(0.18)
GAAP fuel expense	$	347	$	2.00	$	203	$	1.61
Fuel gallons			173				126

Raw fuel expense increased 127% in the first quarter of 2022 compared to the first quarter of 2021 due to a combination of increased fuel consumption and higher per gallon ~~for the three months ended March 31, 2021 decreased~~costs. Fuel consumption increased by 47 million gallons, consistent with an increase in departures. Raw fuel expense per gallon increased by approximately 7%64% due to ~~lower~~higher 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~~increase in raw fuel price per gallon during the first quarter of ~~2021~~2022 was primarily driven by a ~~37% decrease in refining margins, offset by a 24%~~64% increase in crude oil prices when compared to the prior year. Adjustments to inventory held in the first quarter of 2020, which were not required in the first quarter of 2021, also contributed to the year-over-year reduction, coupled with a decline in consumption of 68 million gallons, or 35%, on a 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~~Economic fuel expense~~, we include~~ includes gains and losses only when they are realized for those contracts that were settled during the period based on their original contract terms. We believe this is the best measure of the effect that fuel prices are currently having on our business 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~~Gains recognized for hedges that settled during the first quarter were $3$50 million in ~~2021,~~2022, compared to losses of $5$3 million in the same period in ~~2020.~~2021. These amounts represent cash received from hedges at settlement, offset by cash paid for premium expense.

We expect to see continued pressure in aircraft fuel expense as we progress through 2022, driven by both increased raw fuel and refining margins on increased capacity. We expect our economic fuel cost per gallon in the second quarter to range between $3.20 and $3.25 per gallon. Based on expected raw fuel prices, we will continue to recognize benefits from our fuel hedge portfolio during 2022. We expect the magnitude of the hedge benefit to be lesser in the second half of the year as the strike price of the portfolio approaches projected market cost per barrel.

Non-fuel Expenses

The table below provides the reconciliation of the operating expense line items, excluding fuel, the Payroll Support Program grant wage offset and other special items. Significant operating expense variances from ~~2020~~2021 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 March 31,
(in millions)	2022		2021		% Change
Wages and benefits	$	606	$	493	23	%
Variable incentive pay	36		33		9	%
Aircraft maintenance	135		81		67	%
Aircraft rent	73		62		18	%
Landing fees and other rentals	138		129		7	%
Contracted services	78		51		53	%
Selling expenses	58		33		76	%
Depreciation and amortization	102		97		5	%
Food and beverage service	41		23		78	%
Third-party regional carrier expense	42		30		40	%
Other	152		105		45	%
Total non-fuel operating expenses, excluding special items	$	1,461	$	1,137	28	%

28For the remainder of the year, we generally anticipate recognizing incremental costs as compared to 2021 as we continue to increase our capacity and scheduled departures, and hire additional employees at higher wage rates to staff our operation.

Wages and Benefits

Wages and benefits ~~decreased~~increased during the first quarter of ~~2021~~2022 by ~~$119~~$113 million, or ~~19%~~23%, compared to ~~2020.~~2021. The primary components of Wages and benefits are shown in the following table:

Three Months Ended March 31,
(in millions) 2021 2020 % Change
Wages $ 357 $ 453 (21) %
Pension - Defined benefit plans service cost 13 13 — %
Defined contribution plans 32 38 (16) %
Medical and other benefits 65 76 (14) %
Payroll taxes 26 32 (19) %
Total wages and benefits $ 493 $ 612 (19) %


	Three Months Ended March 31,
(in millions)	2022		2021		% Change
Wages	$	467	$	357	31	%
Pension - Defined benefit plans service cost	11		13		(15)	%
Defined contribution plans	38		32		19	%
Medical and other benefits	56		65		(14)	%
Payroll taxes	34		26		31	%
Total wages and benefits	$	606	$	493	23	%

Wages ~~decreased $96~~increased $110 million, or ~~21%~~31%, on a ~~24% reduction~~26% increase in FTEs. ~~Decreased~~Increased wages as compared to the prior period are primarily the result of ~~voluntary early-outs,~~the increase in FTEs as ~~well as leaves of absence~~Alaska and ~~incentive lines accepted in 2020 which have carried into 2021. The reductions to defined-contribution plan~~Horizon continue their recovery from the pandemic and ramp up operations. Increased expense ~~medical and other benefits,~~for defined contribution plans and payroll taxes are ~~a direct result of~~in line with the ~~decline in~~related increase to wages.

~~Variable Incentive Pay~~

~~Variable incentive pay expense increased $26 million, or 371%, during the first quarter of 2021~~Medical and other benefits decreased as compared to ~~the same period in 2020 on increased expectation~~2021 as a result of ~~achievement of key financial~~an adjustment to prior-period reserves and ~~operational metrics.~~structural changes to benefit programs.

Aircraft Maintenance

Aircraft maintenance expense ~~decreased by $34~~increased $54 million, or ~~30%~~67%, compared to the first quarter of 2021. Higher maintenance expense is the result of charges recorded for maintenance work to return leased aircraft and increased power-by-the-hour charges on covered aircraft, including a new contract for our regional fleet.

Aircraft Rent

Aircraft rent expense increased by $11 million, or 18%, during the first quarter of ~~2021~~2022 compared to the same period in ~~2020. This is~~2021 primarily ~~due to~~as a ~~significant reduction~~result of leased Boeing 737-9 deliveries in ~~engine events~~the second half of 2021 and ~~heavy checks, coupled with lower spend on components and materials, on reduced utilization~~first quarter of ~~our aircraft. Further contributing to the year-over-year decline is a reduction in project spend, which was largely halted in March 2020.~~2022.

We expect ~~increased~~ aircraft ~~maintenance~~rent to increase in 2022 on the annualization of expense ~~in the second quarter as we return~~and additional deliveries of leased 737-9 aircraft and incremental aircraft flown by SkyWest under our long-term capacity ~~and increase utilization of our aircraft.~~purchase agreement.

Landing ~~fees~~Fees and ~~other rentals~~Other Rentals

Landing fees and other rentals ~~decreased~~increased by $2$9 million, or 2%7%, during the first quarter of ~~2021~~2022. The increase compared to the same period in ~~2020 on a 30% decrease~~2021 is due to an increase in ~~departures. Decreased departure-related costs were largely~~departures as demand returns, partially offset by ~~rate increases at many of our hub airports.~~

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

Contracted Services

Contracted services ~~decreased~~increased by ~~$21~~$27 million, or ~~29%~~53%, during the first quarter of ~~2021~~2022 compared to the same period in ~~2020~~2021 driven primarily by ~~decreased~~increased departures and passengers ~~as compared to the prior-year period as a result of the COVID-19 pandemic.~~in line with increased demand, coupled with increased rates charged by vendor partners.

Selling Expense

Selling expense ~~decreased~~increased by ~~$22~~$25 million, or ~~40%~~76%, during the first quarter of ~~2021~~2022 compared to the same period in ~~2020,~~2021, primarily driven by ~~a significant reduction~~an increase in distribution costs and credit card ~~commissions. Reduced marketing spend and sponsorship costs also contributed to~~commissions incurred with 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.~~

overall revenue recovery.

Food and Beverage Service

Food and beverage service ~~decreased~~increased by ~~$26~~$18 million, or ~~53%~~78%, during the first quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. This ~~decrease~~increase is ~~consistent~~in line with the ~~overall reduction~~86% increase in revenue passengers as compared to the prior-year ~~period, as well as 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.~~period.

Third-party Regional Carrier Expense

Third-party regional carrier expense, which represents ~~payments made to~~expenses associated with SkyWest under our CPA, ~~decreased~~increased by $7$12 million, or ~~19%~~40%, during the first quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. The ~~reduction~~increase in expense is ~~primarily~~ due to incremental departures flown by SkyWest as compared to the prior-year period. In addition, a benefit was recorded in 2021 associated with the pass through of CARES Act PSP funding ~~received~~that reduced expense, which did not recur in 2022.

We expect third-party regional carrier expense to grow in 2022 as compared to 2021 as we bring incremental E175 aircraft into the CPA with SkyWest through the year.

Other Expense

Other expense increased $47 million, or 45%, during the first quarter of 2022 compared to ~~offset SkyWest pilot~~the same period in 2021. Increased expense is primarily driven by incremental crew hotel stays and ~~flight attendant wages~~per diem, consistent with the overall increase in departures and ~~benefits.~~capacity.

Special Items - ~~Impairment~~fleet transition and ~~other~~related charges

We recorded ~~impairment~~non-recurring expense associated with fleet transition and ~~other~~related charges of ~~$18~~$75 million in the first quarter of ~~2021, consisting of costs associated with leased aircraft that have been retired and removed from the operating fleet but not yet returned~~2022. Refer to Note 2 to the ~~lessor.~~condensed consolidated financial statements for additional details.

~~Special Items - Restructuring charges~~

We recorded restructuring charges of $11 million in the first quarter of 2021 for pilots on incentive lines as a result of delayed recalls beyond what was anticipated at December 31, 2020 due to training limitations and 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 operations recorded ~~a pre-tax~~an adjusted pretax loss of $174 million in the first quarter of 2022, compared to an adjusted pretax loss of $444 million in the first quarter of ~~2021, compared to a pre-tax loss of $85~~2021. The $270 million ~~in the first quarter of 2020. The $359 million incremental loss recorded~~improvement was primarily driven by a ~~$728~~$737 million ~~decrease~~increase in Passenger revenues as a result of ~~the COVID-19 pandemic,~~increased demand for air travel, offset by a ~~$266~~$301 million ~~decrease~~increase in non-fuel operating costs and a ~~$139~~$207 million ~~decrease~~increase in economic fuel cost.

The decrease in Mainline passenger revenue for the first quarter of 2021 was primarily driven by a 52% decline in traffic on a 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~~increased significantly, ~~on cost savings~~ driven by ~~reduced~~increased variable costs, ~~on reduced~~largely consistent with the overall increase in capacity ~~as well as decreased wages~~ and ~~benefits expense from voluntary leaves of absence and reduced aircraft rent charges as a result of impairment recorded in 2020. Lower raw~~departures. Higher economic fuel prices, combined with ~~a 40% decrease in~~more gallons consumed, drove the ~~decline~~increase in Mainline fuel expense.

Regional

Regional operations ~~generated a~~recorded an adjusted pretax loss of $55 million in the first quarter of 2022, compared to an adjusted pretax loss of $150 million in the first quarter of ~~2021, compared to a pretax loss of $73 million in the first quarter of 2020. The increase in the pretax loss was~~2021. Improved results were attributable to a ~~$91~~$113 million ~~decline~~increase in operating revenues, partially offset by a ~~$10~~$21 million ~~decrease~~increase in fuel ~~costs and a $4 million decrease in non-fuel operating expenses.~~costs.

Regional passenger ~~revenue decreased 38%~~revenues increased significantly compared to the first quarter of ~~2020,~~2021, primarily driven by increased load factors and a ~~25% decline~~31% improvement in ~~traffic on a 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.~~yield.

~~The decrease~~Higher economic fuel prices, combined with a significant increase in ~~non-fuel operating expenses is primarily due to~~gallons consumed, drove the ~~pass through of CARES Act PSP funding received~~increase in ~~the first quarter to offset SkyWest pilot and flight attendant wages and benefits.~~Regional fuel expense.

Horizon

Horizon ~~achieved a~~recorded an adjusted pretax ~~profit~~loss of $10 million in the first quarter of 2022, compared to an adjusted pretax income of $11 million in the first quarter of ~~2021 compared~~2021. The shift to ~~$8 million in the first quarter of 2020. Profit recorded~~adjusted loss is driven by ~~Horizon in the first quarter is primarily the result of~~lower CPA revenue on decreased departures, combined with incremental ~~flying as a proportion of overall Air Group capacity as compared to the prior year. Horizon revenues are recorded based upon purchased capacity,~~maintenance expense on E175 aircraft and ~~are not impacted by changes to ticket prices~~higher wage and ~~customer demand. Horizon profit is also the result of continued significant cost reduction efforts implemented in response to the COVID-19 pandemic.~~benefit costs on incremental FTEs.

LIQUIDITY AND CAPITAL RESOURCES

~~As a result~~Our primary sources of ~~the COVID-19 pandemic, we have taken, and will continue to take action to reduce costs, manage~~ liquidity and help to preserve the relative strength of our balance sheet. In 2020, we took significant actions to enhance and preserve our 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:are:

•~~Generated positive operating~~Existing cash ~~flow~~and marketable securities balance of ~~$167 million, bolstered by improved advance bookings for increased demand for air travel~~$2.9 billion, and ~~inclusive of approximately $400 million of PSP grant funding;~~cash flows from operations;

•~~Decreased adjusted net debt to $1.6 billion at March 31, 2021 from $1.7 billion at December 31, 2020;~~58 unencumbered aircraft that could be financed, if necessary;

•~~Received a combined $546 million~~Combined bank line-of-credit facilities, with no outstanding borrowings, of ~~grants and loans from the U.S. Treasury under an extension of the PSP, and anticipate a supplemental payment of $80 million in late April under PSP 2;~~$400 million.

•~~Received notification~~During the three months ended March 31, 2022, we took free and clear delivery of seven Boeing 737-9 aircraft. We also made debt payments totaling $170 million, ending the quarter with a debt-to-capitalization ratio of 50%, within our stated target range of 40% to 50%. Subsequent to quarter end, we received $184 million in federal tax refund as a result of carrying back losses from the ~~U.S. Treasury that Alaska, Horizon and McGee are eligible to obtain an additional $584 million in incremental payroll support funding under a third round of the PSP;~~

•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 2022 to later years, and;

•Maintained low capital expenditures, which are expected to range between $150 million to $200 million during 2021, including 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. Alaska also has access to $1.8 billion in additional funding made available under the CARES Act loan program, although there currently is no expectation that we will draw on those funds.2020 tax year.

As the business ~~continues~~returns to ~~recover and eventually returns to~~sustained profitability, reducing outstanding debt, normalizing our on-hand liquidity, and ~~strengthening~~reinforcing our balance sheet ~~will~~remain high priorities. Our capital expenditures for 2022 are expected to be ~~a high priority. Based~~approximately $1.6 billion to $1.7 billion, which we plan to fund with cash generated by operating activities and cash 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.~~hand.

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.

In our cash and marketable securities portfolio, we invest only in securities that meet our primary investment strategy of maintaining and securing investment principal. The portfolio is managed by reputable firms that adhere to our investment policy that sets forth investment objectives, approved and prohibited investments, and duration and credit quality guidelines. Our policy, and the portfolio managers, are continually reviewed to ensure that the investments are aligned with our strategy.

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


(in millions)	March 31, 2022			December 31, 2021			Change
Cash and marketable securities	$	2,890		$	3,116		(7) %
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	47		%	57		%	(10) pts
Long-term debt, net of current portion	2,078			2,173			(4)%
Shareholders’ equity	$	3,637		$	3,801		(4)%

(in millions) March 31, 2021 December 31, 2020 Change
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 130 % 94 % 36 pts
Total debt 3,571 3,495 2 %
Shareholders’ equity $ 2,875 $ 2,988 (4)%


Debt-to-capitalization, adjusted for operating leases
(in millions)	March 31, 2022			December 31, 2021			Change
Long-term debt, net of current portion	$	2,078		$	2,173		(4)%
Capitalized operating leases	1,629			1,547			5%

Adjusted debt, net of current portion of long-term debt	$	3,707		$	3,720		—%
Shareholders' equity	3,637			3,801			(4)%
Total invested capital	$	7,344		$	7,521		(2)%

Debt-to-capitalization, including operating leases	50		%	49		%	1 pt

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, 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)	March 31, 2021		December 31, 2020		(in millions)	March 31, 2022		December 31, 2021
Current portion of long-term debt	Current portion of long-term debt	$	1,246	$	1,138	Current portion of long-term debt	$	292	$	366
Current portion of operating lease liabilities	Current portion of operating lease liabilities	271		290		Current portion of operating lease liabilities	272		268
Long-term debt, net of current portion		2,325		2,357
Long-term debt						Long-term debt	2,078		2,173
Long-term operating lease liabilities, net of current portion	Long-term operating lease liabilities, net of current portion	1,283		1,268		Long-term operating lease liabilities, net of current portion	1,357		1,279
Total adjusted debt	Total adjusted debt	5,125		5,053		Total adjusted debt	3,999		4,086
Less: Cash and marketable securities	Less: Cash and marketable securities	(3,549)		(3,346)		Less: Cash and marketable securities	(2,890)		(3,116)
Adjusted net debt	Adjusted net debt	$	1,576	$	1,707	Adjusted net debt	$	1,109	$	970

(in millions)	(in millions)	Twelve Months Ended March 31, 2021		Twelve Months Ended December 31, 2020		(in millions)	Twelve Months Ended March 31, 2022		Twelve Months Ended December 31, 2021
GAAP Operating Loss(a)		$	(1,615)	$	(1,775)
GAAP Operating Income(a)						GAAP Operating Income(a)	$	644	$	685
Adjusted for:	Adjusted for:					Adjusted for:
Payroll Support Program grant wage offset and special items	Payroll Support Program grant wage offset and special items	(474)		71		Payroll Support Program grant wage offset and special items	(468)		(925)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(39)		(8)		Mark-to-market fuel hedge adjustments	(132)		(47)
Depreciation and amortization	Depreciation and amortization	409		420		Depreciation and amortization	399		394
Aircraft rent	Aircraft rent	280		299		Aircraft rent	265		254
EBITDAR	EBITDAR	$	(1,439)	$	(993)	EBITDAR	$	708	$	361
Adjusted net debt to EBITDAR	Adjusted net debt to EBITDAR	(1.1x)		(1.7x)		Adjusted net debt to EBITDAR	1.6x		2.7x

(a)Operating ~~loss~~Income can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC.

The following discussion summarizes the primary drivers of the increase in our cash and marketable securities balance and our expectation of future cash requirements.

3332

ANALYSIS OF OUR CASH FLOWS

Cash Provided by Operating Activities

For the first three months of ~~2021,~~2022, net cash provided by operating activities was ~~$167~~$287 million, compared to ~~$33~~$167 million during the same period in ~~2020.~~2021. The ~~$134~~$120 million increase in our operating cash flows is primarily attributable to ~~a $101 million improvement to net loss, aided by the receipt and recognition of $403 million in PSP grant funding made available by the U.S. Treasury. Additionally, improvement~~increased build in our air traffic liability, as cash advance bookings in March 2022 reached the highest monthly total in company history. This increase was partially offset by uses of cash on increasing operating ~~cash flows is due to increased advanced bookings~~expenses and ~~significant reduction in refund activity when~~greater payout on our performance based pay program as compared to ~~the first quarter of 2020.~~2021.

Cash Used in Investing Activities

Cash ~~used in~~provided by investing activities was ~~$543~~$39 million during the first three months of ~~2021,~~2022, compared to ~~$127~~$543 million used in investing activities during the same period of ~~2020.~~2021. The ~~increase~~shift to cash ~~used in~~provided by investing activities is primarily due to ~~an increase in~~ net ~~purchases~~sales of marketable securities, which were ~~$511~~$328 million in the first three months of ~~2021,~~2022, compared to ~~$16~~net purchases of $511 million in the three months ended 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~~2021. This activity was partially offset by ~~reduced~~an increase in cash used for capital expenditures ~~in 2021 as a result~~ of ~~postponing non-critical capital expenditures beginning in March 2020.~~$261 million for aircraft purchase deposits and other property and equipment.

Cash Provided by (Used in) Financing Activities

Cash ~~from~~used in financing activities was ~~$82~~$168 million during the first three months of ~~2021~~2022, compared to cash provided by financing activities of ~~$684~~$82 million during the same period in ~~2020.~~2021. During the first three months of ~~2021,~~2022, we had no new proceeds from issuance of debt ~~issuances~~and utilized cash on hand to repay $170 million of outstanding long-term debt, compared to debt proceeds of $189 million primarily a result of the loan portion of the proceeds from the CARES Act PSP, compared to $825 million issued in 2020 in response to the COVID-19 pandemic. These proceeds were partially offset by debtand payments of $115 ~~million.~~million during the same period in 2021.

~~CONTRACTUAL OBLIGATIONS AND~~MATERIAL CASH COMMITMENTS

Aircraft Commitments

As of March 31, ~~2021, we have~~2022, Alaska has firm orders to purchase 5467 Boeing 737 aircraft with deliveries in 2022 through 2024 and firm commitments to lease ~~13 aircraft.~~seven Boeing 737-9 aircraft with deliveries in 2022. Alaska also has ~~cancellable~~an agreement with SkyWest Airlines to expand their long-term capacity purchase agreement by six Embraer E175 aircraft in 2022 and one in 2023. Horizon has commitments ~~for 30 Airbus A320neo~~to purchase 12 Embraer E175 aircraft with deliveries ~~from 2024 through 2027. At this time, we do not expect to take delivery of these 30 Airbus aircraft.~~between 2022 and 2025. Alaska ~~also~~ has options to acquire ~~52 B737-9 MAX~~up to 11 additional Boeing 737-9 aircraft and 41 additional Boeing 737-10 aircraft with deliveries ~~from 2023 through 2026,~~between 2024 and ~~Horizon has options to acquire 30 E175 aircraft with deliveries from 2022 through 2024.~~2026. Options will be exercised only if we believe return on invested capital targets can be met over the long term.

3433

The following table summarizes our anticipated fleet count by year, as of March 31, ~~2021:~~

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


	Actual Fleet	Anticipated Fleet Activity(a)
Aircraft	March 31, 2022	2022 Additions	2022 Removals	Dec 31, 2022	2023 Changes	Dec 31, 2023	2024 Changes	Dec 31, 2024
737 Freighters(b)	3	—	—	3	—	3	—	3
B737-700	11	—	—	11	—	11	—	11
B737-800(b)	61	—	—	61	—	61	—	61
B737-900	12	—	—	12	—	12	—	12
B737-900ER	79	—	—	79	—	79	—	79
B737-8	—	—	—	—	5	5	5	10
B737-9	19	23	—	42	28	70	7	77
B737-10	—	—	—	—	—	—	6	6
A320(d)	30	—	(14)	16	(16)	—	—	—
A321neo	10	—	—	10	(10)	—	—	—
Total Mainline Fleet	225	23	(14)	234	7	241	18	259
Q400 operated by Horizon(d)	32	—	(8)	24	(24)	—	—	—
E175 operated by Horizon	30	3	—	33	6	39	—	39
E175 operated by third party	36	6	—	42	1	43	—	43
Total Regional Fleet(c)	98	9	(8)	99	(17)	82	—	82
Total	323	32	(22)	333	(10)	323	18	341

(a)Anticipated fleet activity reflects intended early retirement and extensions or replacement of certain leases, not all of which have been contracted or agreed to by counterparties yet.

(b)~~Actual fleet at March 31, 2021, excluding Airbus~~Excludes the planned addition of two 737-800 freighters following conversion from passenger aircraft, ~~permanently parked in response to COVID-19 capacity reductions.~~as well as the subsequent replacement of passenger aircraft.

(c)Aircraft are either owned or leased by Horizon or operated under capacity purchase agreement with a third ~~party.~~party, which are not yet contracted.

(d)In March 2022, management announced its intention to accelerate the removal of the A320 and Q400 aircraft from the operating fleet. Management continues to refine anticipated removal dates for individual aircraft, and as such, timing of removals may shift between 2022 and 2023.

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

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. Our crude oil positions are as follows:

Approximate Gallons Hedged (in millions) Weighted-Average Crude Oil Price per Barrel Average Premium Cost per Barrel
Second Quarter 2021 80 $59 $2
Third Quarter 2021 100 $60 $2
Fourth Quarter 2021 70 $59 $3
Remainder of 2021 250 $59 $2
First Quarter 2022 40 $59 $3
Second Quarter 2022 35 $61 $3
Third Quarter 2022 15 $67 $4
Full Year 2022 90 $61 $3


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











Second Quarter 2022	50	%	$71	$3
Third Quarter 2022	50	%	$80	$3
Fourth Quarter 2022	40	%	$83	$5
Full Year 2022	47	%	$78	$4
First Quarter of 2023	30	%	$84	$6
Second Quarter of 2023	20	%	$92	$7
Third Quarter of 2023	10	%	$100	$8
Full Year 2023	15	%	$90	$7

3534

Contractual Obligations

The following table provides a summary of our contractual obligations as of March 31, ~~2021.~~2022. For agreements with variable terms, amounts included reflect our minimum obligations.

(in millions) Remainder of 2021 2022 2023 2024 2025 Beyond 2025 Total
Current and long-term debt obligations $ 659 $ 796 $ 334 $ 240 $ 396 $ 1,179 $ 3,604
Aircraft lease commitments(a)
246 280 219 167 159 633 1,704
Facility lease commitments 8 10 9 8 6 87 128
Aircraft-related commitments(b)
111 1,325 681 183 15 12 2,327
Interest obligations (c)
67 86 71 61 55 151 491
Other obligations (d)
135 184 189 196 197 898 1,799
Total $ 1,226 $ 2,681 $ 1,503 $ 855 $ 828 $ 2,960 $ 10,053


(in millions)	Remainder of 2022		2023		2024		2025		2026		Beyond 2026		Total
Debt obligations	$	201	$	334	$	240	$	261	$	176	$	1,176	$	2,388
Aircraft lease commitments(a)	235		255		198		193		188		710		1,779
Facility lease commitments	13		16		9		8		8		86		140
Aircraft-related commitments(b)	1,159		1,781		414		111		47		275		3,787


Interest obligations (c)	50		95		71		53		53		132		454
Other obligations (d)	144		193		199		203		199		757		1,695
Total	$	1,802	$	2,674	$	1,131	$	829	$	671	$	3,136	$	10,243

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

(b)Includes non-cancelable contractual commitments for aircraft and engines, buyer furnished equipment, and contractual aircraft maintenance obligations. Contractual commitments do not reflect the impact of the impending fleet transition.

(c)For variable-rate debt, future obligations are shown above using interest rates forecast as of March 31, ~~2021.~~2022.

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

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.

Leased Aircraft Return Costs

For many of our leased aircraft, we are required under the contractual terms to return the aircraft in a specified state. As a result of these contractual terms, we will incur significant costs to return these aircraft at the termination of the lease. Costs of returning leased aircraft are accrued when the costs are probable and reasonably estimable, usually over the twelve months prior to the lease return, unless a determination is made that the leased asset is removed from operation. If the leased aircraft is removed from the operating fleet, the estimated cost of return is accrued at the time of removal. Any accrual is based on the time remaining on the lease, planned aircraft usage and the provisions included in the lease agreement, although the actual amount due to any lessor upon return may not be known with certainty until lease termination. We anticipate recording material expenses and cash outflows to return aircraft in 2022 in conjunction with expected lease terminations and the accelerated exit of Airbus aircraft from Alaska's fleet.

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.

CRITICAL ACCOUNTING ESTIMATES

~~There have been no material changes to our critical accounting estimates during the three months ended March 31, 2021. For~~Except as described below, for information onregarding our critical accounting estimates, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

FREQUENT FLYER PROGRAMS

The rate at which we defer sales proceeds related to services sold:

Following the amendment of our agreement with our co-brand bank card partner in the first quarter, the Company updated the standalone selling price for performance obligations in the contract. Updated standalone selling prices became effective as of January 1, 2022.

The number of miles that will not be redeemed for travel (breakage):

Following its review of significant Mileage Plan assumptions, the Company updated its breakage estimate for the portion of loyalty mileage credits not expected to be redeemed, effective January 1, 2022. This update was made following a study that used a statistical analysis of historical data. At March 31, 2022, the deferred revenue balance associated with the Mileage Plan program was $2.4 billion. A hypothetical 1% change in the amount of outstanding miles estimated to be redeemed would result in an approximately $7 million impact on annual revenue recognized.

GLOSSARY OF AIRLINE TERMS

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

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

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

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

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

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

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

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus 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™~~Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and 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


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, ~~2020.~~2021.


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, ~~2021,~~2022, an evaluation was performed under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (collectively, our “certifying officers”), of the effectiveness of the design and operation of our disclosure controls and procedures. These disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in our periodic reports filed with or submitted to the Securities and Exchange Commission (the SEC) is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and includes, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our certifying officers, as appropriate, to allow timely decisions regarding required disclosure. Our certifying officers concluded, based on their evaluation, that disclosure controls and procedures were effective as of March 31, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, ~~2021,~~2022, 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).

PART II


ITEM 1. LEGAL PROCEEDINGS

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. In February 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~~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~~Alaska is seeking ~~an appellate court~~a conclusive U.S. Supreme 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 provisions of 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~~case. If appeal efforts are unsuccessful, compliance with California and ~~agree with~~other states' laws may have an adverse impact on the Company's ~~other bases for appeal.~~operations and financial position.


ITEM 1A. RISK FACTORS

~~There have been no material changes to the~~See Part I, Item 1A. "Risk Factors," in our 2021 Form 10-K for a detailed discussion of risk factors affecting ~~our business, financial condition or future results from those set forth in Item 1A."Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.~~Alaska Air Group.


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, subject to restrictions under the CARES Act, the Company suspended the share repurchase program indefinitely. These restrictions are effective until October 1, 2022. When the repurchase program is restarted, the plan has remaining authorization to purchase an additional $456 million in shares.

~~On February 19, 2021, the Company issued 12,197 warrants to the United States Department~~As of ~~the Treasury (“Treasury”) in connection with the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act, resulting in warrants to purchase~~March 31, 2022, a total of ~~928,127~~1,455,438 shares of the Company’s common stock ~~that~~ have been issued to Treasury in connection with the ~~payroll support program.~~Payroll Support Program. Each warrant is exercisable at a strike price of $31.61 (928,127 shares related to PSP1), $52.25 (305,499 shares related to PSP2), and $66.39 (221,812 shares related to PSP3) per share of common stock 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”).

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 an extension of the PSP under the CARES Act, made available under the Consolidated Appropriations Act, 2021. Each warrant is exercisable at a strike price of $52.25 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 the Securities Act.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. MINE SAFETY DISCLOSURES

None.


ITEM 5. OTHER INFORMATION

None.


ITEM 6. EXHIBITS

The following documents are filed as part of this report:

1.Exhibits: See Exhibit Index.

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~~EMILY HALVERSON
~~Christopher M. Berry~~Emily Halverson
Vice President Finance and Controller

May ~~6, 2021~~5, 2022

EXHIBIT INDEX

Exhibit
Number Exhibit
Description Form Date of First Filing Exhibit Number
3.1
Amended and Restated Certificate of Incorporation of Registrant
10-Q August 3, 2017 3.1
10.1†*
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.

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. 19 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 portions have been redacted from this exhibit in accordance with Item 601(b)(10) of Regulation S-K under the Securities Exchange Act of 1934, as amended.


PART I.	FINANCIAL INFORMATION	4
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	38
ITEM 4.	CONTROLS AND PROCEDURES	39
PART II.	OTHER INFORMATION	40
ITEM 1.	LEGAL PROCEEDINGS	40
ITEM 1A.	RISK FACTORS	40
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	4140
ITEM 4.	MINE SAFETY DISCLOSURES	4140
ITEM 5.	OTHER INFORMATION	41
ITEM 6.	EXHIBITS	41
	SIGNATURES	41


	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


	Total
Remainder of 2021	$	659
2022	796
2023	334
2024	240
2025	396
Thereafter	1,179
Total	$	3,604


	March 31, 2021		December 31, 2020
Related to marketable securities	$	11	$	23
Related to employee benefit plans	(492)		(498)
Related to interest rate derivatives	(13)		(19)
Total	$	(494)	$	(494)