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 ~~June 30, 2021~~March 31, 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 ~~125,232,721~~126,091,824 common shares, par value $0.01, outstanding at ~~July 31, 2021.~~April 30, 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 ~~JUNE 30, 2021~~MARCH 31, 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)	June 30, 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	$	1,025	$	1,370	Cash and cash equivalents	$	628	$	470
Marketable securities	Marketable securities	2,926		1,976		Marketable securities	2,262		2,646
Total cash and marketable securities	Total cash and marketable securities	3,951		3,346		Total cash and marketable securities	2,890		3,116
Receivables - net	Receivables - net	567		480		Receivables - net	658		546
Inventories and supplies - net	Inventories and supplies - net	52		57		Inventories and supplies - net	78		62
Prepaid expenses, assets held-for-sale, and other current assets		201		123
Prepaid expenses and other current assets						Prepaid expenses and other current assets	348		196
Total Current Assets	Total Current Assets	4,771		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	7,996		7,761		Aircraft and other flight equipment	8,244		8,127
Other property and equipment	Other property and equipment	1,433		1,398		Other property and equipment	1,529		1,489
Deposits for future flight equipment	Deposits for future flight equipment	402		583		Deposits for future flight equipment	283		384
		9,831		9,742			10,056		10,000
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	3,703		3,531		Less accumulated depreciation and amortization	3,814		3,862
Total Property and Equipment - Net	Total Property and Equipment - Net	6,128		6,211		Total Property and Equipment - Net	6,242		6,138

Other Assets						Other Assets
Operating lease assets	Operating lease assets	1,375		1,400		Operating lease assets	1,541		1,453
Goodwill		1,943		1,943
Intangible assets - net		103		107
Goodwill and intangible assets						Goodwill and intangible assets	2,042		2,044
Other noncurrent assets	Other noncurrent assets	336		379		Other noncurrent assets	411		396
Other Assets		3,757		3,829
Total Other Assets						Total Other Assets	3,994		3,893

Total Assets	Total Assets	$	14,656	$	14,046	Total Assets	$	14,210	$	13,951

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions, except share amounts)	(in millions, except share amounts)	June 30, 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	$	159	$	108	Accounts payable	$	299	$	200
Accrued wages, vacation and payroll taxes	Accrued wages, vacation and payroll taxes	439		527		Accrued wages, vacation and payroll taxes	367		457
Air traffic liability	Air traffic liability	1,533		1,073		Air traffic liability	1,643		1,163

Other accrued liabilities	Other accrued liabilities	661		424		Other accrued liabilities	659		625
Deferred revenue	Deferred revenue	922		733		Deferred revenue	1,038		912
Current portion of operating lease liabilities	Current portion of operating lease liabilities	263		290		Current portion of operating lease liabilities	272		268
Current portion of long-term debt	Current portion of long-term debt	869		1,138		Current portion of long-term debt	292		366
Total Current Liabilities	Total Current Liabilities	4,846		4,293		Total Current Liabilities	4,570		3,991

Long-Term Debt, Net of Current Portion	Long-Term Debt, Net of Current Portion	2,319		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	1,222		1,268		Long-term operating lease liabilities, net of current portion	1,357		1,279
Deferred income taxes	Deferred income taxes	439		407		Deferred income taxes	509		578
Deferred revenue	Deferred revenue	1,424		1,544		Deferred revenue	1,394		1,446
Obligation for pension and postretirement medical benefits		660		665
Obligation for pension and post-retirement medical benefits						Obligation for pension and post-retirement medical benefits	302		305
Other liabilities	Other liabilities	422		524		Other liabilities	363		378
Total Noncurrent Liabilities						Total Noncurrent Liabilities	3,925		3,986
		4,167		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 - 134,579,403 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 125,229,459 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	454		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	(487)		(494)		Accumulated other comprehensive loss	(292)		(262)
Retained earnings	Retained earnings	4,030		3,764		Retained earnings	4,099		4,242
		3,324		2,988			3,637		3,801
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	14,656	$	14,046	Total Liabilities and Shareholders' Equity	$	14,210	$	13,951

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in millions, except per share amounts)	(in millions, except per share amounts)	2021		2020		2021		2020		(in millions, except per share amounts)	2022		2021
Operating Revenues	Operating Revenues									Operating Revenues
Passenger revenue	Passenger revenue	$	1,352	$	309	$	2,011	$	1,790	Passenger revenue	$	1,511	$	659
Mileage Plan other revenue	Mileage Plan other revenue	118		73		212		182		Mileage Plan other revenue	112		94
Cargo and other	Cargo and other	57		39		101		85		Cargo and other	58		44
Total Operating Revenues	Total Operating Revenues	1,527		421		2,324		2,057		Total Operating Revenues	1,681		797
Operating Expenses	Operating Expenses									Operating Expenses
Wages and benefits	Wages and benefits	510		472		1,003		1,084		Wages and benefits	606		493
Variable incentive pay	Variable incentive pay	34		16		67		23		Variable incentive pay	36		33
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(503)		(362)		(914)		(362)		Payroll Support Program grant wage offset	—		(411)
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	274		59		477		443		Aircraft fuel, including hedging gains and losses	347		203
Aircraft maintenance	Aircraft maintenance	102		45		183		160		Aircraft maintenance	135		81
Aircraft rent	Aircraft rent	62		74		124		155		Aircraft rent	73		62
Landing fees and other rentals	Landing fees and other rentals	144		83		273		214		Landing fees and other rentals	138		129
Contracted services	Contracted services	54		30		105		102		Contracted services	78		51
Selling expenses	Selling expenses	41		4		74		59		Selling expenses	58		33
Depreciation and amortization	Depreciation and amortization	98		107		195		215		Depreciation and amortization	102		97
Food and beverage service	Food and beverage service	35		7		58		56		Food and beverage service	41		23
Third-party regional carrier expense	Third-party regional carrier expense	37		26		67		63		Third-party regional carrier expense	42		30
Other	Other	117		78		222		221		Other	152		105
Special items - impairment charges and other		(4)		69		14		229
Special items - fleet transition and related charges										Special items - fleet transition and related charges	75		18
Special items - restructuring charges	Special items - restructuring charges	(23)		0		(12)		0		Special items - restructuring charges	—		11
Special items - merger-related costs		0		1		0		4

Total Operating Expenses	Total Operating Expenses	978		709		1,936		2,666		Total Operating Expenses	1,883		958
Operating Income (Loss)		549		(288)		388		(609)
Nonoperating Income (Expense)
Operating Loss										Operating Loss	(202)		(161)

Non-operating Income (Expense)										Non-operating Income (Expense)
Interest income	Interest income	6		7		13		16		Interest income	7		7
Interest expense	Interest expense	(39)		(17)		(71)		(30)		Interest expense	(27)		(32)
Interest capitalized	Interest capitalized	3		1		6		4		Interest capitalized	2		3
Other - net	Other - net	9		6		19		11		Other - net	14		10
Total Nonoperating Income (Expense)		(21)		(3)		(33)		1
Income (Loss) Before Income Tax		528		(291)		355		(608)
Income tax expense (benefit)		131		(77)		89		(162)
Net Income (Loss)		$	397	$	(214)	$	266	$	(446)
Total Non-operating Expense										Total Non-operating Expense	(4)		(12)
Loss Before Income Tax										Loss Before Income Tax	(206)		(173)
Income tax benefit										Income tax benefit	(63)		(42)
Net Loss										Net Loss	$	(143)	$	(131)

Basic Income (Loss) Per Share:		$	3.18	$	(1.74)	$	2.13	$	(3.62)
Diluted Income (Loss) Per Share:		$	3.13	$	(1.74)	$	2.10	$	(3.62)
Basic Loss Per Share:										Basic Loss Per Share:	$	(1.14)	$	(1.05)
Diluted Loss Per Share:										Diluted Loss Per Share:	$	(1.14)	$	(1.05)
Shares used for computation:	Shares used for computation:									Shares used for computation:
Basic	Basic	124.977		123.296		124.640		123.058		Basic	125.984		124.299
Diluted	Diluted	126.825		123.296		126.388		123.058		Diluted	125.984		124.299

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 2021 2020
Net Income (Loss) $ 397 $ (214) $ 266 $ (446)
Other Comprehensive Income (Loss):
Related to marketable securities:
Unrealized holding gain (loss) arising during the period 0 31 (11) 30
Reclassification of gain into Other - net nonoperating income (2) (6) (6) (9)
Income tax effect 1 (6) 4 (5)
Total (1) 19 (13) 16
Related to employee benefit plans:
Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income 9 8 17 15
Income tax effect (2) (2) (4) (4)
Total 7 6 13 11
Related to interest rate derivative instruments:
Unrealized holding gain (loss) arising during the period 1 (2) 9 (27)
Reclassification of loss into Aircraft rent 0 0 0 1
Income tax effect 0 1 (2) 6
Total 1 (1) 7 (20)
Other Comprehensive Income 7 24 7 7
Comprehensive Income (Loss) $ 404 $ (190) $ 273 $ (439)


	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) Common Stock Outstanding Common Stock Capital in Excess of Par Value Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Balances at December 31, 2020 124.217 $ 1 $ 391 $ (674) $ (494) $ 3,764 $ 2,988
Net loss — — — — — (131) (131)
Other comprehensive income — — — — 0 — 0
Stock-based compensation — — 12 — — — 12
CARES Act warrant issuance — — 8 — — — 8
Stock issued under stock plans 0.225 — (2) — — — (2)
Balances at March 31, 2021 124.442 $ 1 $ 409 $ (674) $ (494) $ 3,633 $ 2,875
Net income — — — — — 397 397
Other comprehensive income — — — — 7 — 7
Stock-based compensation 0.009 — 13 — — — 13
CARES Act warrant issuance — — 8 — — — 8
Stock issued for employee stock purchase plan 0.716 — 23 — — — 23
Stock issued under stock plans 0.062 — 1 — — — 1
Balances at June 30, 2021 125.229 1 454 (674) (487) 4,030 3,324


(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, 2021	125.906	$	1	$	494	$	(674)	$	(262)	$	4,242	$	3,801
Net loss	—	—		—		—		—		(143)		(143)
Other comprehensive loss	—	—		—		—		(30)		—		(30)

Stock-based compensation	—	—		13		—		—		—		13



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


(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, 2019		123.000	$	1	$	305	$	(643)	$	(465)	$	5,133	$	4,331
Balances at December 31, 2020															Balances at December 31, 2020	124.217	$	1	$	391	$	(674)	$	(494)	$	3,764	$	2,988

Net loss	Net loss	—	—		—		—		—		(232)		(232)		Net loss	—	—		—		—		—		(131)		(131)
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(17)		—		(17)		Other comprehensive loss	—	—		—		—		—		—		—
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
Net loss		—	—		—		—		—		(214)		(214)
Other comprehensive income		—	—		—		—		24		—		24

Stock-based compensation	Stock-based compensation	—	—		2		—		—		—		2		Stock-based compensation	—	—		12		—		—		—		12
CARES Act warrant issuance	CARES Act warrant issuance	—	—		7		—		—		—		7		CARES Act warrant issuance	—	—		8		—		—		—		8

Stock issued for employee stock purchase plan		1.000	—		27		—		—		—		27

Stock issued under stock plans	Stock issued under stock plans	0.054	—		0		—		—		—		0		Stock issued under stock plans	0.225	—		(2)		—		—		—		(2)
Balances at June 30, 2020		123.639	$	1	$	350	$	(674)	$	(458)	$	4,642	$	3,861
Balance at March 31, 2021															Balance at March 31, 2021	124.442	$	1	$	409	$	(674)	$	(494)	$	3,633	$	2,875

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Six Months Ended June 30,					Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		(in millions)	2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net Income (Loss)		$	266	$	(446)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net Loss						Net Loss	$	(143)	$	(131)
Adjustments to reconcile net loss to net cash provided by operating activities:						Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	195		215		Depreciation and amortization	102		97
Stock-based compensation and other	Stock-based compensation and other	24		7		Stock-based compensation and other	5		12
Special items - impairment charges and other		14		229
Special items - fleet transition and related charges						Special items - fleet transition and related charges	75		18
Special items - restructuring charges	Special items - restructuring charges	(12)		0		Special items - restructuring charges	—		11
Changes in certain assets and liabilities:	Changes in certain assets and liabilities:					Changes in certain assets and liabilities:
Changes in deferred tax provision	Changes in deferred tax provision	33		(98)		Changes in deferred tax provision	(58)		(39)
Increase in accounts receivable						Increase in accounts receivable	(112)		(37)
Increase in air traffic liability	Increase in air traffic liability	460		231		Increase in air traffic liability	480		224
Increase in deferred revenue	Increase in deferred revenue	69		84		Increase in deferred revenue	74		48

Other - net	Other - net	(42)		99		Other - net	(136)		(36)
Net cash provided by operating activities	Net cash provided by operating activities	1,007		321		Net cash provided by operating activities	287		167
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Property and equipment additions:	Property and equipment additions:					Property and equipment additions:
Aircraft and aircraft purchase deposits	Aircraft and aircraft purchase deposits	(30)		(58)		Aircraft and aircraft purchase deposits	(207)		(3)
Other flight equipment	Other flight equipment	(38)		(43)		Other flight equipment	(24)		(11)
Other property and equipment	Other property and equipment	(34)		(67)		Other property and equipment	(57)		(13)
Total property and equipment additions, including capitalized interest	Total property and equipment additions, including capitalized interest	(102)		(168)		Total property and equipment additions, including capitalized interest	(288)		(27)
Purchases of marketable securities	Purchases of marketable securities	(2,524)		(1,004)		Purchases of marketable securities	(552)		(1,243)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	1,561		1,038		Sales and maturities of marketable securities	880		732
Other investing activities	Other investing activities	(5)		10		Other investing activities	(1)		(5)
Net cash used in investing activities		(1,070)		(124)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	39		(543)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of debt	Proceeds from issuance of debt	363		1,265		Proceeds from issuance of debt	—		189
Common stock repurchases		0		(31)
Dividends paid		0		(45)

Long-term debt payments	Long-term debt payments	(681)		(125)		Long-term debt payments	(170)		(115)
Other financing activities	Other financing activities	37		27		Other financing activities	2		8
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(281)		1,091		Net cash provided by (used in) financing activities	(168)		82
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	(344)		1,288		Net increase (decrease) in cash, cash equivalents, and restricted cash	158		(294)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	1,386		232		Cash, cash equivalents, and restricted cash at beginning of period	494		1,386
Cash, cash equivalents, and restricted cash at end of the period	Cash, cash equivalents, and restricted cash at end of the period	$	1,042	$	1,520	Cash, cash equivalents, and restricted cash at end of the period	$	652	$	1,092

Cash paid during the period for:
Interest (net of amount capitalized)		$	61	$	25
Income taxes		0		0

Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents		$	1,025	$	1,509
Restricted cash included in Prepaid expenses, assets held-for-sale, and other current assets		17		11
Total cash, cash equivalents, and restricted cash at end of the period		$	1,042	$	1,520


	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

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 ~~June 30, 2021~~March 31, 2022 and the results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 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 ~~and six~~ months ended ~~June 30, 2021~~March 31, 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~~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 demand, passenger enplanements remain below pre-pandemic levels. As a result,2022, the Company ~~continues~~announced plans to ~~fly less capacity than it had pre-pandemic.~~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.

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. DepartmentValuation of the Treasury (the Treasury). As demand has improved and the business has grown back towards pre-pandemic flying levels, these programs have been adjusted to meet the needs of the airline. The impacts of these programs for the three and six months ended June 30, 2021 are described below.

~~Lease Return Costs~~long-lived assets

The Company ~~removed 40 leased Aircraft from operating service in 2020, and recorded~~reviews its long-lived assets for impairment whenever events or changes indicate that the total carrying amount of an ~~estimate~~asset or asset group may not be recoverable. The decisions made by the Company to accelerate the retirement of the ~~expected future~~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 ~~costs~~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 ~~aircraft. Lease return costs include~~A320 and Q400 fleets, comparing the ~~write off~~sum of ~~associated maintenance deposits, as the Company no longer expects~~estimated undiscounted future cash flows expected to ~~perform maintenance events covered~~be directly generated by those deposits. The total net charge recorded in 2020 for aircraft that were parked amounted to $209 million. In the first quarter of 2021, the Company recorded an additional $18 million in incremental costs associated with leased aircraft that have been retired and removed from the operating fleet but not yet returnedeach asset group to the ~~lessor, which was classified as Special items - impairment charges~~asset group's carrying value. Future cash flows were estimated utilizing a combination of historical data, forecasted results, and ~~other on~~anticipated use of the condensed consolidated statements of operations. In the second quarter, expected costs to return leased aircraft was reduced by $4 million. The lease return cost estimates are based on the Company's best estimate of costs to return aircraft as of March 31, 2022. The analysis indicated the ~~date of this filing.~~

~~In the second quarter of 2021,~~A320 fleet was recoverable and no impairment measurement was required. However, the Company ~~initiated a plan~~will adjust the useful lives of the A320 aircraft and related assets to ~~reactivate up to twelve previously parked Airbus aircraft to support~~correspond with the Company's plans for restoring capacity to 100% of pre-pandemic levels by no later than summer 2022. These reactivations create flexibility as management seeks to return capacity, mitigating against both staffinganticipated cease-use date. The analysis indicated the Q400 fleet was not recoverable, and supply chain risks that could constrain Alaska or Horizon's available capacity. Management's plans to return to 100% of pre-pandemic levels by no later than summer 2022 are consistent with previous plans, but some recovery has been accelerated into the second half of 2021 in response to the strong demand recovery that took place in the second quarter.The first of these reactivated aircraft are expected to reenter revenue service beginning in the third quarter of 2021, with all reactivated by the second quarter of 2022. The Company currently anticipates these aircraft will be removed from operating service beginning in late 2022 through the end

of 2023. At this time, the Company does not anticipate material changes to estimated lease return costs previously recorded, as leases for aircraft returning to service generally expire within a near term window.

~~Workforce restructuring~~impairment measurement was required.

The Company ~~continues to expect that demand will be below pre-pandemic levels through~~evaluated the ~~end of 2021, but management will continue rebuilding capacity to 2019 levels. The Company reduced its workforce in 2020 to better align~~fair market value for the Q400 fleet using available market price information with ~~the expected size of the business. To mitigate the need for involuntary furloughs, various early-out~~adjustments based on quantitative 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 June 30, 2021, approximately 1,800 employees remainqualitative considerations. Based on ~~a voluntary leave program. The Company expects all employees on leave to return to work by October 2021.~~

~~In 2020, as a result of these programs,~~this fair market value, the Company recorded ~~$220~~an impairment charge of $70 million, ~~in wage expense for those pilots and mechanics on incentive leaves, ongoing medical benefit coverage and lump-sum termination payments. In~~reflecting the ~~first quarter~~amount by which carrying value exceeded fair value of ~~2021,~~ the ~~Company refined capacity expectations and training schedules, and delayed certain recalls to a future period beyond what was anticipated in~~owned Q400 aircraft. This amount is included within the accrual at December 31, 2020, resulting in additional expense of $11 million. In the second quarter, demand improved at an accelerated pace, and the Company issued recall notices to all pilots on incentive leave for return-to-work by October 2021. As a result, $23 million of incentive leave accrual was reversed and recognized as a benefit within Special"Special items - ~~restructuring charges in~~fleet transition and related charges" line within the ~~condensed~~ consolidated ~~statements~~statement of ~~operations during the three months ended June 30, 2021. In total, the Company has recorded a net benefit from these adjustments of $12 million during the six months ended June 30, 2021.~~

~~The table below presents a roll forward of the outstanding voluntary leave liability (in millions):~~


	Six Months Ended June 30, 2021
~~Total voluntary leave liability balance at January 1~~	$	~~127~~
~~Cash payments~~	~~(79)~~
~~Charges and adjustments~~	~~(12)~~
~~Total voluntary leave liability balance at June 30~~	$	36

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 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. In April 2021, Alaska and Horizon received an additional $80 million in funds made available under PSP 2.

Also in April 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 received total funds of $585 million in the second quarter of 2021.

Of the amounts received during the six months ended June 30, 2021, $311 million represented unsecured debt and was recorded at par, and $16 million represented warrants recorded at fair value using the Black-Scholes model. Both were recorded on the condensed consolidated balance sheet. The remaining $892 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 the PSP program (PSP 1). The grant is recorded as an offset to wages, salaries and benefits as eligible expenses are incurred. During the six months ended June 30, 2021, the Company recognized $914 million of the PSP grant proceeds as a wage offset. Included within this $914 million is approximately $21 million for employee retention credits as provided for in the CARES Act. The Company does not expect to record any additional wage offset in 2021.

~~Total funds contracted from~~operations. In conjunction with the ~~Treasury under~~impairment, the ~~three Payroll Support Programs are allocated as follows (in millions):~~
Grants Loans Warrants Total Proceeds
PSP 1 $ 757 $ 293 $ 9 $ 1,059
PSP 2 457 160 9 626
PSP 3 431 147 7 585
Total $ 1,645 $ 600 $ 25 $ 2,270
Company adjusted the useful lives of Q400 aircraft and related assets to correspond with the anticipated cease-use date.

~~Funds are exclusively used~~The Company will continue to evaluate the need for ~~payment~~further impairment or adjustments for owned and leased long-lived assets as fleet decisions evolve.

Other Special Items

In addition to the impairment described above, the Company recorded $5 million incremental expense to "Special items - fleet transition and related charges" within the condensed consolidated statement of ~~employee salaries, wages~~operations. This includes adjustments related to the outstanding accrual for costs to return leased aircraft and ~~benefits. Upon receipt~~a write-down of ~~the funds issued under PSP 3, certain conditions and restrictions were extended. These conditions include,~~right of use assets for two A320 aircraft for which return to service work was initiated 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.was 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 June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Passenger ticket revenue, including ticket breakage and net of taxes and fees		$	1,114	$	222	$	1,639	$	1,435
Passenger ticket revenue, including ticket breakage, net of taxes and fees										Passenger ticket revenue, including ticket breakage, net of taxes and fees	$	1,232	$	525
Passenger ancillary revenue	Passenger ancillary revenue	84		31		134		147		Passenger ancillary revenue	91		50
Mileage Plan passenger revenue	Mileage Plan passenger revenue	154		56		238		208		Mileage Plan passenger revenue	188		84
Total Passenger revenue	Total Passenger revenue	$	1,352	$	309	$	2,011	$	1,790	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 June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Passenger revenue	Passenger revenue	$	154	$	56	$	238	$	208	Passenger revenue	$	188	$	84
Mileage Plan other revenue	Mileage Plan other revenue	118		73		212		182		Mileage Plan other revenue	112		94
Total Mileage Plan revenue	Total Mileage Plan revenue	$	272	$	129	$	450	$	390	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 June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Cargo revenue	Cargo revenue	$	34	$	28	$	61	$	52	Cargo revenue	$	29	$	27
Other revenue	Other revenue	23		11		40		33		Other revenue	29		17
Total Cargo and other revenue	Total Cargo and other revenue	$	57	$	39	$	101	$	85	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 ~~$36~~ $390 million and ~~net refunds~~$136 million from the prior year-end air traffic liability balance for the three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020, and $175 million and $484 million for the six months ended June 30, 2021 and 2020.~~2021.

Given the increase in demand for air travel from the recovery from the COVID-19 pandemic, advance bookings and associated cash receipts have significantly increased in relation to prior year. The Company also experienced increased revenue recognition from credits redeemed for travel, for which the remaining balance is included in the air traffic liability balance, and total $387 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.

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 ~~$61~~$108 million of such receivables as of ~~June 30, 2021~~March 31, 2022 and ~~$48~~$64 million as of December 31, ~~2020.~~2021. As demand for air travel ~~continues to increase unpredictably,~~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):


		Six Months Ended June 30,						Three Months Ended March 31,
			2021		2020				2022		2021
Total Deferred Revenue balance at January 1			$	2,277	$	1,990
Total Deferred revenue balance at January 1							Total Deferred revenue balance at January 1		$	2,358	$	2,277
Travel miles and companion certificate redemption - Passenger revenue	Travel miles and companion certificate redemption - Passenger revenue		(238)		(208)		Travel miles and companion certificate redemption - Passenger revenue		(176)		(84)
Miles redeemed on partner airlines - Other revenue	Miles redeemed on partner airlines - Other revenue		(17)		(21)		Miles redeemed on partner airlines - Other revenue		(9)		(4)
Increase in liability for mileage credits issued	Increase in liability for mileage credits issued		324		313		Increase in liability for mileage credits issued		259		136
Total Deferred Revenue balance at June 30			$	2,346	$	2,074
Total Deferred revenue balance at March 31							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 ~~June 30, 2021,~~March 31, 2022, total cost basis for all marketable securities was ~~$2.9~~$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):


		June 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
		Level 1		Level 2		Total		Level 1		Level 2		Total			Level 1		Level 2		Total		Level 1		Level 2		Total

Assets	Assets													Assets
Marketable securities	Marketable securities													Marketable securities
U.S. government and agency securities	U.S. government and agency securities	$	298	$	0	$	298	$	407	$	0	$	407	U.S. government and agency securities	$	416	$	—	$	416	$	331	$	—	$	331
Equity mutual funds	Equity mutual funds	5		0		5		7		0		7		Equity mutual funds	6		—		6		6		—		6
Foreign government bonds	Foreign government bonds	0		31		31		0		20		20		Foreign government bonds	—		29		29		—		38		38
Asset-backed securities	Asset-backed securities	0		330		330		0		224		224		Asset-backed securities	—		244		244		—		311		311
Mortgage-backed securities	Mortgage-backed securities	0		253		253		0		290		290		Mortgage-backed securities	—		190		190		—		232		232
Corporate notes and bonds	Corporate notes and bonds	0		1,943		1,943		0		978		978		Corporate notes and bonds	—		1,314		1,314		—		1,663		1,663
Municipal securities	Municipal securities	0		66		66		0		50		50		Municipal securities	—		63		63		—		65		65
Total Marketable securities	Total Marketable securities	303		2,623		2,926		414		1,562		1,976		Total Marketable securities	422		1,840		2,262		337		2,309		2,646
Derivative instruments	Derivative instruments													Derivative instruments
Fuel hedge - call options	Fuel hedge - call options	0		92		92		0		15		15		Fuel hedge - call options	—		203		203		—		81		81

Interest rate swap agreements														Interest rate swap agreements	—		6		6		—		—		—
Total Assets	Total Assets	$	303	$	2,715	$	3,018	$	414	$	1,577	$	1,991	Total Assets	$	422	$	2,049	$	2,471	$	337	$	2,390	$	2,727

Liabilities	Liabilities													Liabilities
Derivative instruments	Derivative instruments													Derivative instruments

Interest rate swap agreements	Interest rate swap agreements	0		(16)		(16)		0		(25)		(25)		Interest rate swap agreements	—		(2)		(2)		—		(9)		(9)
Total Liabilities	Total Liabilities	$	0	$	(16)	$	(16)	$	0	$	(25)	$	(25)	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 June 30, 2021.

Maturities for marketable securities (in millions):


June 30, 2021		Cost Basis		Fair Value
March 31, 2022						March 31, 2022	Cost Basis		Fair Value
Due in one year or less	Due in one year or less	$	1,538	$	1,539	Due in one year or less	$	628	$	626
Due after one year through five years	Due after one year through five years	1,280		1,294		Due after one year through five years	1,651		1,597
Due after five years through 10 years		88		88
Due after five years						Due after five years	34		33

Total	Total	$	2,906	$	2,921	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 ~~June 30, 2021,~~March 31, 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 ~~$780~~$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):


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021

Total fixed-rate debt	Total fixed-rate debt	$	1,896	$	1,662	Total fixed-rate debt	$	1,752	$	1,821

Estimated fair value	Estimated fair value	$	2,019	$	1,778	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 ~~and six~~ months ended ~~June 30, 2021.~~March 31, 2022.

NOTE 5. LONG-TERM DEBT

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


		June 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
Fixed-rate notes payable due through 2029	Fixed-rate notes payable due through 2029	$	180		$	198		Fixed-rate notes payable due through 2029	$	150		$	163
Fixed-rate PSP notes payable due through 2031	Fixed-rate PSP notes payable due through 2031	600			290			Fixed-rate PSP notes payable due through 2031	600			600
Fixed-rate EETC payable due through 2025 & 2027	Fixed-rate EETC payable due through 2025 & 2027	1,116			1,174			Fixed-rate EETC payable due through 2025 & 2027	1,002			1,058
Variable-rate notes payable due through 2029	Variable-rate notes payable due through 2029	1,315			1,866			Variable-rate notes payable due through 2029	636			738
Less debt issuance costs and unamortized debt discount		(23)			(33)
Less debt issuance costs								Less debt issuance costs	(18)			(20)
Total debt	Total debt	3,188			3,495			Total debt	2,370			2,539
Less current portion	Less current portion	869			1,138			Less current portion	292			366
Long-term debt, less current portion	Long-term debt, less current portion	$	2,319		$	2,357		Long-term debt, less current portion	$	2,078		$	2,173

Weighted-average fixed-interest rate	Weighted-average fixed-interest rate	3.7		%	4.3		%	Weighted-average fixed-interest rate	3.6		%	3.7		%
Weighted-average variable-interest rate	Weighted-average variable-interest rate	1.6		%	1.9		%	Weighted-average variable-interest rate	1.7		%	1.3		%

Approximately ~~$562~~$396 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at ~~June 30, 2021,~~March 31, 2022, resulting in an effective weighted-average interest rate for the full debt portfolio of ~~3.1%~~3.3%.

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the Company ~~issued $363 million~~made scheduled debt payments of ~~debt, comprised of $311 million of unsecured loans from the PSP and $54 million in proceeds from issuance of debt. Debt proceeds were offset by $681 million in debt~~$170 million.

payments. Included within total debt payments is the full repayment of the $135 million loan from the U.S. Treasury made available under the CARES Act and the $363 million outstanding balance on two credit facilities.

The $600 million PSP notes are unsecured senior term loans with a 10-year term, bearing an interest rate of 1% in years 1 through 5, and an interest rate equal to the Secured Overnight Financing Rate (SOFR) plus 2% in years 6 through 10. The 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 were 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. In 2020, the Company drew $135 million under the agreement, which was 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. The full balance was repaid in the second quarter of 2021. In accordance with the related agreement, the facility terminated at the time of payment.

Debt Maturity

At ~~June 30, 2021~~March 31, 2022, long-term debt principal payments for the next five years and thereafter are as follows (in millions):


		Total			Total
Remainder of 2021		$	227
2022		796
Remainder of 2022				Remainder of 2022	$	201
2023	2023	334		2023	334
2024	2024	240		2024	240
2025	2025	261		2025	261
2026				2026	176
Thereafter	Thereafter	1,353		Thereafter	1,176
Total	Total	$	3,211	Total	$	2,388

Bank Lines of Credit

~~The Company~~Alaska has 3 credit facilities ~~with availability~~ totaling $486 million as of ~~June 30, 2021, resulting from the second quarter 2021 repayment of $363 million.~~March 31, 2022. One of the credit facilities for $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 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 $86 million expires in June 2022 and is secured by aircraft.

~~The Company~~Alaska has secured letters of credit against the third 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 ~~June 30, 2021.~~March 31, 2022.

NOTE 6. EMPLOYEE BENEFIT PLANS

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Service cost	Service cost	$	13	$	13	$	26	$	26	Service cost	$	11	$	13
Pension expense included in Wages and benefits	Pension expense included in Wages and benefits	13		13		26		26		Pension expense included in Wages and benefits	11		13

Interest cost	Interest cost	14		19		28		38		Interest cost	16		14
Expected return on assets	Expected return on assets	(30)		(27)		(61)		(55)		Expected return on assets	(32)		(31)

Recognized actuarial loss	Recognized actuarial loss	9		8		18		17		Recognized actuarial loss	2		9
Pension expense included in Nonoperating Income (Expense)	Pension expense included in Nonoperating Income (Expense)	$	(7)	$	0	$	(15)	$	0	Pension expense included in Nonoperating Income (Expense)	$	(14)	$	(8)

NOTE 7. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of ~~June 30, 2021~~March 31, 2022 (in millions):


		Aircraft Commitments(a)		Capacity Purchase Agreements (b)			Aircraft Commitments(a)		Capacity Purchase Agreements (b)
Remainder of 2021		$	107	$	82
2022		1,458		173
Remainder of 2022						Remainder of 2022	$	1,159	$	133
2023	2023	1,207		178		2023	1,781		182
2024	2024	291		183		2024	414		188
2025	2025	76		188		2025	111		194
2026						2026	47		195
Thereafter	Thereafter	12		877		Thereafter	275		740
Total	Total	$	3,151	$	1,681	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 ~~June 30, 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 ~~63 B737-9 MAX~~12 Embraer E175 aircraft with ~~contracted~~ deliveries between ~~2021~~2022 and ~~2024.~~2025. Future minimum contractual payments for these aircraft reflect the expected delivery timing, but are also subject to change. Horizon also has commitments to purchase 12 E175 aircraft with deliveries between 2022 and 2025. Alaska has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2024 through 2027. In addition, Alaska has options to purchase 39 B737-9 MAX aircraft, and Horizon has options to purchase 21 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.

~~The Company is~~Like other U.S. airlines, Alaska and Horizon are 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 June 30, 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 Issuances

As additional taxpayer protection required under ~~PSP programs, during~~ the ~~six months ended June 30, 2021~~Payroll Support Program (PSP) under the CARES Act, the Company granted the Treasury a total of ~~539,508~~1,455,438 warrants to purchase ~~Alaska Air Group (ALK)~~ALK common ~~stock. The~~stock in 2020 and 2021. An additional 427,080 warrants were issued in conjunction with a draw on the CARES Act Loan in 2020. These warrants are non-voting, freely transferable, may be settled as net shares or in cash at ~~Alaska's~~the Company's option, and have a five-year term.

~~Additionally, in conjunction with the October 2020 draw on the CARES Act Loan, the Company granted the Treasury 427,080 warrants to purchase ALK common stock.~~ The value of the warrants was estimated using a Black-Scholes option pricing ~~model, and the relative~~model. The total fair value of ~~the~~all outstanding warrants ~~of $6~~was $30 million, ~~was~~ recorded in stockholders' ~~equity.~~equity at issuance.

Total warrants outstanding are as follows as of ~~June 30, 2021:~~March 31, 2022:


		Number of shares of ALK common stock	Strike Price		Number of shares of ALK common stock	Strike Price
PSP 1	PSP 1	928,127	31.61	PSP 1	928,127	31.61
CARES Act loan warrants	CARES Act loan warrants	427,080	31.61	CARES Act loan warrants	427,080	31.61
PSP 2	PSP 2	305,499	52.25	PSP 2	305,499	52.25
PSP 3	PSP 3	221,812	66.39	PSP 3	221,812	66.39
Total		1,882,518
Outstanding March 31, 2022				Outstanding March 31, 2022	1,882,518

Accumulated other comprehensive loss

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


	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)

June 30, 2021 December 31, 2020
Related to marketable securities $ 10 $ 23
Related to employee benefit plans (485) (498)
Related to interest rate derivatives (12) (19)
Total $ (487) $ (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 ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 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 June 30, 2021															Three Months Ended March 31, 2022
		Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated			Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues	Operating Revenues															Operating Revenues
Passenger revenues	Passenger revenues	$	1,072	$	280	$	0	$	0	$	1,352	$	0	$	1,352	Passenger revenues	$	1,243	$	268	$	—	$	—	$	1,511	$	—	$	1,511
CPA revenues	CPA revenues	0		0		111		(111)		0		0		0		CPA revenues	—		—		94		(94)		—		—		—
Mileage Plan other revenue	Mileage Plan other revenue	102		16		0		0		118		0		118		Mileage Plan other revenue	100		12		—		—		112		—		112
Cargo and other	Cargo and other	55		0		0		2		57		0		57		Cargo and other	57		—		—		1		58		—		58
Total Operating Revenues	Total Operating Revenues	1,229		296		111		(109)		1,527		0		1,527		Total Operating Revenues	1,400		280		94		(93)		1,681		—		1,681
Operating Expenses	Operating Expenses															Operating Expenses
Operating expenses, excluding fuel	Operating expenses, excluding fuel	984		286		91		(127)		1,234		(530)		704		Operating expenses, excluding fuel	1,194		262		99		(94)		1,461		75		1,536
Economic fuel		253		66		0		1		320		(46)		274
Fuel expense																Fuel expense	381		73		—		—		454		(107)		347
Total Operating Expenses	Total Operating Expenses	1,237		352		91		(126)		1,554		(576)		978		Total Operating Expenses	1,575		335		99		(94)		1,915		(32)		1,883
Nonoperating Income (Expense)
Interest income		6		0		0		0		6		0		6
Interest expense		(34)		0		(5)		0		(39)		0		(39)
Interest capitalized		3		0		0		0		3		0		3
Other - net		9		0		0		0		9		0		9
Total Nonoperating Income (Expense)		(16)		0		(5)		0		(21)		0		(21)

Non-operating Income (Expense)																Non-operating Income (Expense)	1		—		(5)		—		(4)		—		(4)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(24)	$	(56)	$	15	$	17	$	(48)	$	576	$	528	Income (Loss) Before Income Tax	$	(174)	$	(55)	$	(10)	$	1	$	(238)	$	32	$	(206)

		Three Months Ended June 30, 2020															Three Months Ended March 31, 2021
		Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated			Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues	Operating Revenues															Operating Revenues
Passenger revenues	Passenger revenues	$	225	$	84	$	0	$	0	$	309	$	0	$	309	Passenger revenues	$	506	$	153	$	—	$	—	$	659	$	—	$	659
CPA revenues	CPA revenues	0		0		81		(81)		0		0		0		CPA revenues	—		—		104		(104)		—		—		—
Mileage Plan other revenue	Mileage Plan other revenue	56		17		0		0		73		0		73		Mileage Plan other revenue	80		14		—		—		94		—		94
Cargo and other	Cargo and other	39		0		0		0		39		0		39		Cargo and other	44		—		—		—		44		—		44
Total Operating Revenues	Total Operating Revenues	320		101		81		(81)		421		0		421		Total Operating Revenues	630		167		104		(104)		797		—		797
Operating Expenses	Operating Expenses															Operating Expenses
Operating expenses, excluding fuel	Operating expenses, excluding fuel	746		210		68		(82)		942		(292)		650		Operating expenses, excluding fuel	893		265		88		(109)		1,137		(382)		755
Economic fuel		45		20		0		0		65		(6)		59
Fuel expense																Fuel expense	174		52		—		(1)		225		(22)		203
Total Operating Expenses	Total Operating Expenses	791		230		68		(82)		1,007		(298)		709		Total Operating Expenses	1,067		317		88		(110)		1,362		(404)		958
Nonoperating Income (Expense)
Interest income		11		0		0		(4)		7		0		7
Interest expense		(18)		0		(5)		6		(17)		0		(17)
Interest capitalized		1		0		0		0		1		0		1
Other - net		6		0		0		0		6		0		6
Total Nonoperating Income (Expense)		0		0		(5)		2		(3)		0		(3)

Non-operating Income (Expense)																Non-operating Income (Expense)	(7)		—		(5)		—		(12)		—		(12)
Income (Loss) Before Income Tax	Income (Loss) Before Income Tax	$	(471)	$	(129)	$	8	$	3	$	(589)	$	298	$	(291)	Income (Loss) Before Income Tax	$	(444)	$	(150)	$	11	$	6	$	(577)	$	404	$	(173)

Six Months Ended June 30, 2021
Mainline Regional Horizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenues
Passenger revenues $ 1,578 $ 433 $ 0 $ 0 $ 2,011 $ 0 $ 2,011
CPA revenues 0 0 215 (215) 0 0 0
Mileage Plan other revenue 182 30 0 0 212 0 212
Cargo and other 99 0 0 2 101 0 101
Total Operating Revenues 1,859 463 215 (213) 2,324 0 2,324
Operating Expenses
Operating expenses, excluding fuel 1,877 551 179 (236) 2,371 (912) 1,459
Economic fuel 427 118 0 0 545 (68) 477
Total Operating Expenses 2,304 669 179 (236) 2,916 (980) 1,936
Nonoperating Income (Expense)
Interest income 13 0 0 0 13 0 13
Interest expense (61) 0 (10) 0 (71) 0 (71)
Interest capitalized 6 0 0 0 6 0 6
Other - net 19 0 0 0 19 0 19
Total Nonoperating Income (Expense) (23) 0 (10) 0 (33) 0 (33)
Income (Loss) Before Income Tax $ (468) $ (206) $ 26 $ 23 $ (625) $ 980 $ 355
Six Months Ended June 30, 2020
Mainline Regional Horizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenues
Passenger revenues $ 1,459 $ 331 $ 0 $ 0 $ 1,790 $ 0 $ 1,790
CPA revenues 0 0 186 (186) 0 0 0
Mileage Plan other revenue 154 28 0 0 182 0 182
Cargo and other 83 0 0 2 85 0 85
Total Operating Revenues 1,696 359 186 (184) 2,057 0 2,057
Operating Expenses
Operating expenses, excluding fuel 1,905 479 160 (192) 2,352 (129) 2,223
Economic fuel 358 82 0 0 440 3 443
Total Operating Expenses 2,263 561 160 (192) 2,792 (126) 2,666
Nonoperating Income (Expense)
Interest income 25 0 0 (9) 16 0 16
Interest expense (30) 0 (10) 10 (30) 0 (30)
Interest capitalized 4 0 0 0 4 0 4
Other - net 12 0 0 (1) 11 0 11
Total Nonoperating Income (Expense) 11 0 (10) 0 1 0 1
Income (Loss) Before Income Tax $ (556) $ (202) $ 16 $ 8 $ (734) $ 126 $ (608)

(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):


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Mainline	Mainline	$	19,920	$	19,754	Mainline	$	19,684	$	19,258
Horizon	Horizon	1,251		1,170		Horizon	1,125		1,212
Consolidating & Other	Consolidating & Other	(6,515)		(6,878)		Consolidating & Other	(6,599)		(6,519)
Consolidated	Consolidated	$	14,656	$	14,046	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:

•~~Second~~First Quarter Review—highlights from the ~~second~~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 ~~and six~~ months ended ~~June 30, 2021.~~March 31, 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.

~~SECOND~~FIRST QUARTER REVIEW

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

~~Second~~We recorded a consolidated pretax loss for the first quarter ~~2021 results indicate we have reached~~of 2022 of $206 million, compared to a ~~turning point in our recovery from the significant impacts~~pretax loss of ~~the COVID-19 pandemic. Early~~$173 million in the ~~pandemic~~first quarter of 2021. On an adjusted basis, we ~~shared plans~~reported a net loss for the quarter of $167 million, compared to return capacity in a prudent manner, only when demand supported doing so. We also established structural cost removal targets that have positioned the airline well for returning to profitability in recovery. With the strong return of demand in the second quarter, we reported an adjusted net loss ~~that was significantly better than previous quarterly losses, and we currently expect double-digit adjusted pre-tax profit margins~~of $436 million in the ~~third 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.

As we ramp our operation back to flying 2019 capacity levels, we have seen increases to our non-fuel operating expenses. Non-fuel operating expense, excluding special items, rose 28% over the prior year period, primarily driven by increased departure-related costs on 33% more capacity flown. Increased capacity, coupled with 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 primarily from Payroll Support Program grant wage offsets.

See “Results of Operations” below for further discussion of changes in revenues and operating expenses as compared to 2021, and our reconciliation of non-GAAP measures to the most directly comparable GAAP measure. A glossary of financial terms can be found at the end of this Item 2.

Environmental, Social and Governance Updates

Delivering on our diversity, equity and inclusion goals is critical to our long-term success. In the first quarter of 2022, we launched the Ascend Pilot Academy, in partnership with the 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 aviation possible for a broader and more diverse population of 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 emissions target into our company-wide Performance-Based Pay Plan, which is currently tracking to target achievement.

Labor Update

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, we announced plans to accelerate our transition to a 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 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 ~~second half of 2021,~~first quarter, we ~~remain committed to returning capacity in~~announced a deliberate manner to match the return of leisure and business demand in the markets we serve. We also continue to return to 2019 capacity levels no later than the summer of 2022, though we have increased our near-term flying expectations as we ramp towards that target. To support this plan and prepare for growth beyond 2022, in the second quarter of 2021, we exercised options for 13 Boeing 737-9 MAX with deliveries in 2023 and 2024, and nine E175 to be operated by Horizon Air with deliveries in 2022 and 2023. In addition, we expanded our long-term capacityrenewed co-brand credit card agreement with ~~SkyWest by eight aircraft beginning~~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 ~~2022.~~line with returning demand. The new agreement is expected to generate incremental cash flows from improved economics, while providing our guests with expanded benefits.

~~Our guidance~~To support our growth plans, we are focused on staffing our airlines and delivering the operational excellence for ~~2021 compares against 2019~~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 pilots as we ~~believe it provides a more meaningful indication of~~entered the ~~pace~~second quarter. In response, management has moderated second quarter capacity plans to maintain operational integrity, and ~~quality of recovery~~now plans to ~~pre-pandemic~~fly capacity that is 6% to 9% below 2019 levels. ~~For~~Despite the ~~third~~drawdown in capacity, relative strength in the demand environment is expected to lift second quarter ~~we are planning for capacity~~revenues to ~~be approximately 17%~~5% to ~~20% below the same period in~~8% above 2019 coupled with increased passenger counts as leisure travel continues through the summer months and business travel rebuilds as workplaces reopen. As we continue to be disciplined with returning capacity and optimizing the aircraft gauge for flown routes, we anticipate third quarter load factors to range between 82% and 85%.levels.

The guidance we have provided and our outlook more broadly are sensitive to health trends, ~~exposure to variants of the COVID-19 virus, and~~as well as regulations and restrictions imposed by state, local and federal authorities. Our plans will be responsive to emerging information and the guidance we have provided above is subject to greater uncertainty than we have historically experienced. ~~Our~~As we leverage our network, Mileage Plan program, and fleet for growth, our people continue to focus on keeping costs low, running a ~~great~~strong operation, and ~~welcoming guests back to travel with Next-Level Care to ensure they~~building brand love as we go. These are ~~safe and comfortable when they fly. These~~ competitive advantages we have cultivated over many years that will continue to serve us well in ~~2021~~2022 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 Updates~~

As we move beyond the impacts of the COVID-19 pandemic, we have shifted our focus back to our 2025 strategic plan, which was announced in 2019. During the second quarter, we continued to make strides towards our goals of increasing our commitments to diversity, equity, and inclusion, as well as expanding our sustainability efforts. As part of these commitments, we announced a partnership with Boeing on the 737-9 MAX ecoDemonstrator program, aimed at testing advanced technologies to enhance the safety and sustainability of air travel. In the second quarter we also announced we are the first airline to implement network optimization software, Flyways, which uses artificial intelligence and machine learning to optimize air traffic and enable more fuel-efficient flight paths for aggregate savings of fuel, carbon emissions and time.

As a reflection of the importance of the commitments made, we continue to tie a portion of long-term executive compensation to achievement of diversity goals. Additionally, we have incorporated a carbon emission target into our company-wide performance-based pay program, for which we currently expect to meet the targeted goal.

~~Financial Overview~~

Our consolidated pre-tax income for the second quarter of 2021 was $528 million, compared to a pre-tax loss of $291 million in the second quarter of 2020. The $819 million improvement is primarily driven by an increase of $1.1 billion in operating revenue and $141 million of increased wage offsets provided by extensions of the PSP of the CARES Act. These improvements were offset by a $292 million increase in non-fuel operating costs, excluding special items, and a $215 million increase in fuel expense as the operation ramps up to meet increased demand.

~~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 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 metric for the employee annual cash incentive plan, which covers the majority of employees within the Air Group organization.

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

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

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

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

2423

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 June 30,			Six Months Ended June 30,				Three Months Ended March 31,
		2021	2020	Change	2021	2020	Change		2022	2021	Change
Consolidated Operating Statistics:(a)	Consolidated Operating Statistics:(a)							Consolidated Operating Statistics:(a)
Revenue passengers (000)	Revenue passengers (000)	8,712	1,485	486.7%	13,379	10,417	28.4%	Revenue passengers (000)	8,694	4,666	86.3%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	10,334	1,654	524.8%	15,727	12,310	27.8%	RPMs (000,000) "traffic"	10,586	5,393	96.3%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	13,413	4,307	211.4%	23,810	19,612	21.4%	ASMs (000,000) "capacity"	13,783	10,397	32.6%
Load factor	Load factor	77.0%	38.4%	38.6 pts	66.1%	62.8%	3.3 pts	Load factor	76.8%	51.9%	24.9 pts
Yield	Yield	13.09¢	18.68¢	(29.9)%	12.79¢	14.54¢	(12.0)%	Yield	14.27¢	12.22¢	16.8%
RASM	RASM	11.38¢	9.77¢	16.5%	9.76¢	10.49¢	(7.0)%	RASM	12.20¢	7.67¢	59.1%
CASM excluding fuel and special items(b)	CASM excluding fuel and special items(b)	9.20¢	21.87¢	(57.9)%	9.95¢	12.00¢	(17.1)%	CASM excluding fuel and special items(b)	10.61¢	10.93¢	(2.9)%
Economic fuel cost per gallon(b)	Economic fuel cost per gallon(b)	$1.90	$1.20	58.3%	$1.85	$1.77	4.5%	Economic fuel cost per gallon(b)	$2.62	$1.79	46.4%
Fuel gallons (000,000)	Fuel gallons (000,000)	168	54	211.1%	294	248	18.5%	Fuel gallons (000,000)	173	126	37.3%
ASMs per fuel gallon	ASMs per fuel gallon	79.8	79.8	—%	81.0	79.1	2.4%	ASMs per fuel gallon	79.9	82.4	(3.0)%
Average full-time equivalent employees (FTEs)	Average full-time equivalent employees (FTEs)	19,001	15,836	20.0%	18,071	19,115	(5.5)%	Average full-time equivalent employees (FTEs)	21,582	17,140	25.9%
Mainline Operating Statistics:	Mainline Operating Statistics:							Mainline Operating Statistics:
Revenue passengers (000)	Revenue passengers (000)	6,151	905	579.7%	9,302	7,580	22.7%	Revenue passengers (000)	6,566	3,151	108.4%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	8,966	1,276	602.7%	13,555	10,858	24.8%	RPMs (000,000) "traffic"	9,512	4,589	107.3%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	11,611	3,363	245.3%	20,464	17,060	20.0%	ASMs (000,000) "capacity"	12,387	8,853	39.9%
Load factor	Load factor	77.2%	37.9%	39.3 pts	66.2%	63.6%	2.6 pts	Load factor	76.8%	51.8%	25.0 pts
Yield	Yield	11.96¢	17.63¢	(32.2)%	11.64¢	13.44¢	(13.4)%	Yield	13.06¢	11.02¢	18.5%
RASM	RASM	10.59¢	9.52¢	11.2%	9.09¢	9.94¢	(8.6)%	RASM	11.30¢	7.11¢	58.9%
CASM excluding fuel and special items(b)	CASM excluding fuel and special items(b)	8.48¢	22.19¢	(61.8)%	9.17¢	11.17¢	(17.9)%	CASM excluding fuel and special items(b)	9.64¢	10.08¢	(4.4)%
Economic fuel cost per gallon(b)	Economic fuel cost per gallon(b)	$1.88	$1.20	56.7%	$1.84	$1.78	3.4%	Economic fuel cost per gallon(b)	$2.61	$1.77	47.5%
Fuel gallons (000,000)	Fuel gallons (000,000)	135	38	255.3%	233	201	15.9%	Fuel gallons (000,000)	146	98	49.0%
ASMs per fuel gallon	ASMs per fuel gallon	86.0	88.5	(2.8)%	87.8	84.9	3.4%	ASMs per fuel gallon	85.0	90.3	(5.9)%
Average FTEs	Average FTEs	14,021	12,340	13.6%	13,247	14,579	(9.1)%	Average FTEs	16,336	12,473	31.0%
Aircraft utilization	Aircraft utilization	9.9	5.6	76.8%	9.2	8.8	4.5%	Aircraft utilization	9.5	8.5	11.8%
Average aircraft stage length	Average aircraft stage length	1,320	1,144	15.4%	1,313	1,270	3.4%	Average aircraft stage length	1,334	1,303	2.4%
Operating fleet(d)	Operating fleet(d)	202	225	(23) a/c	202	225	(23) a/c	Operating fleet(d)	225	201	24 a/c
Regional Operating Statistics:(c)	Regional Operating Statistics:(c)							Regional Operating Statistics:(c)
Revenue passengers (000)	Revenue passengers (000)	2,562	580	341.7%	4,077	2,837	43.7%	Revenue passengers (000)	2,128	1,515	40.5%
RPMs (000,000) "traffic"	RPMs (000,000) "traffic"	1,367	378	261.6%	2,172	1,452	49.6%	RPMs (000,000) "traffic"	1,075	804	33.7%
ASMs (000,000) "capacity"	ASMs (000,000) "capacity"	1,802	945	90.7%	3,346	2,552	31.1%	ASMs (000,000) "capacity"	1,396	1,544	(9.6)%
Load factor	Load factor	75.9%	40.0%	35.9 pts	64.9%	56.9%	8.0 pts	Load factor	77.0%	52.1%	24.9 pts
Yield	Yield	20.48¢	22.12¢	(7.4)%	19.95¢	22.80¢	(12.5)%	Yield	24.96¢	19.04¢	31.1%
RASM	RASM	16.41¢	10.63¢	54.4%	13.84¢	14.07¢	(1.6)%	RASM	20.04¢	10.84¢	84.9%
Operating fleet		94	94	— a/c	94	94	— a/c
Operating fleet(d)								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 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)
Alaska Air Group, Inc.
Three Months Ended June 30, Six Months Ended June 30,
2021 2019 Change 2021 2019 Change
Passenger revenue $ 1,352 $ 2,111 (36) % $ 2,011 $ 3,827 (47) %
Mileage plan other revenue 118 118 — % 212 228 (7) %
Cargo and other 57 59 (3) % 101 109 (7) %
Total operating revenues $ 1,527 $ 2,288 (33) % $ 2,324 $ 4,164 (44) %
Operating expense, excluding fuel and special items $ 1,234 $ 1,414 (13) % $ 2,371 $ 2,819 (16) %
Economic fuel 274 502 (45) % 477 922 (48) %
Special items (530) 8 NM (912) 34 NM
Total operating expenses $ 978 $ 1,924 (49) % $ 1,936 $ 3,775 (49) %
Total nonoperating expense (21) (13) 62 % (33) (32) 3 %
Income (loss) before income tax $ 528 $ 351 50 % $ 355 $ 357 (1) %
Consolidated Operating Statistics(a):
Revenue passengers (000) 8,712 12,026 (28) % 13,379 22,442 (40) %
RPMs (000,000) "traffic" 10,334 14,638 (29) % 15,727 27,087 (42) %
ASMs (000,000) "capacity" 13,413 16,980 (21) % 23,810 32,487 (27) %
Load Factor 77.0% 86.2% (9.2) pts 66.1% 83.4% (17.3) pts
Yield 13.09¢ 14.43¢ (9) % 12.79¢ 14.13¢ (9) %
RASM 11.38¢ 13.48¢ (16) % 9.76¢ 12.82¢ (24) %
CASMex 9.20¢ 8.33¢ 10 % 9.95¢ 8.68¢ 15 %
FTEs 19,001 21,921 (13) % 18,071 21,876 (17) %

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


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

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

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

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

Consolidated Operating Statistics:
Revenue passengers (000)	8,694		10,417		(17)	%
RPMs (000,000) "traffic"	10,586		12,449		(15)	%
ASMs (000,000) "capacity"	13,783		15,508		(11)	%
Load Factor	76.8%		80.3%		(3.5)	pts
Yield	14.27¢		13.78¢		4	%
RASM	12.20¢		12.10¢		1	%
CASMex	10.61¢		9.06¢		17	%
FTEs	21,582		21,832		(1)	%

2625

COMPARISON OF THREE MONTHS ENDED ~~JUNE 30, 2021~~MARCH 31, 2022 TO THREE MONTHS ENDED ~~JUNE 30, 2020~~MARCH 31, 2021

Our consolidated net ~~income~~loss for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$397~~$143 million, or ~~$3.13~~$1.14 per share, compared to a net loss of ~~$214~~$131 million, or ~~$1.74~~$1.05 per share, for the three months ended ~~June 30, 2020.~~March 31, 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 ~~second~~first quarter of ~~2021~~2022 was ~~$38~~$167 million, or ~~$0.30~~$1.33 per share, compared to an adjusted net loss of ~~$439~~$436 million, or ~~$3.57~~$3.51 per share, in the ~~second~~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 June 30,									Three Months Ended March 31,
		2021				2020					2022				2021
(in millions, except per share amounts)	(in millions, except per share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS		(in millions, except per share amounts)	Dollars		EPS		Dollars		EPS
GAAP net income (loss) per share		$	397	$	3.13	$	(214)	$	(1.74)
GAAP net loss per share										GAAP net loss per share	$	(143)	$	(1.14)	$	(131)	$	(1.05)
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(503)		(3.97)		(362)		(2.94)		Payroll Support Program grant wage offset	—		—		(411)		(3.31)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(46)		(0.36)		(6)		(0.05)		Mark-to-market fuel hedge adjustments	(107)		(0.85)		(22)		(0.18)
Special items - impairment charges and other		(4)		(0.03)		69		0.56
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	(23)		(0.18)		—		—		Special items - restructuring charges	—		—		11		0.09
Special items - merger-related costs		—		—		1		0.01

Income tax effect of reconciling items above	Income tax effect of reconciling items above	141		1.11		73		0.59		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	$	(38)	$	(0.30)	$	(439)	$	(3.57)	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 June 30,							Three Months Ended March 31,
(in cents)	(in cents)	2021		2020		% Change		(in cents)	2022		2021		% Change
Consolidated:	Consolidated:							Consolidated:
CASM	CASM	7.29	¢	16.46	¢	(56)	%	CASM	13.66	¢	9.21	¢	48	%
Less the following components:	Less the following components:							Less the following components:
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(3.75)		(8.40)		(55)	%	Payroll Support Program grant wage offset	—		(3.95)		NM
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	2.04		1.37		49	%	Aircraft fuel, including hedging gains and losses	2.51		1.95		29	%
Special items - impairment charges and other		(0.03)		1.60		(102)	%
Special items - fleet transition and related charges								Special items - fleet transition and related charges	0.54		0.17		NM
Special items - restructuring charges	Special items - restructuring charges	(0.17)		—		NM		Special items - restructuring charges	—		0.11		NM
Special items - merger-related costs		—		0.02		(100)	%

CASM excluding fuel and special items	CASM excluding fuel and special items	9.20	¢	21.87	¢	(58)	%	CASM excluding fuel and special items	10.61	¢	10.93	¢	(3)	%

Mainline:	Mainline:							Mainline:
CASM	CASM	6.24	¢	15.79	¢	(60)	%	CASM	11.89	¢	8.07	¢	47	%
Less the following components:	Less the following components:							Less the following components:
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(3.79)		(9.69)		(61)	%	Payroll Support Program grant wage offset	—		(4.06)		NM
Aircraft fuel, including hedging gains and losses	Aircraft fuel, including hedging gains and losses	1.78		1.16		53	%	Aircraft fuel, including hedging gains and losses	2.21		1.72		29	%

Special items - impairment charges and other		(0.03)		2.11		(101)	%
Special items - fleet transition and related charges								Special items - fleet transition and related charges	0.04		0.20		(80)	%
Special items - restructuring charges	Special items - restructuring charges	(0.20)		—		NM		Special items - restructuring charges	—		0.13		NM
Special items - merger-related costs		—		0.02		(100)	%

CASM excluding fuel and special items	CASM excluding fuel and special items	8.48	¢	22.19	¢	(62)	%	CASM excluding fuel and special items	9.64	¢	10.08	¢	(4)	%

2726

OPERATING REVENUES

Total operating revenues increased ~~$1.1 billion~~$884 million, or 111%, during the ~~second~~first quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. The changes are summarized in the following table:


		Three Months Ended June 30,							Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Passenger revenue	Passenger revenue	$	1,352	$	309	338	%	Passenger revenue	$	1,511	$	659	129	%
Mileage Plan other revenue	Mileage Plan other revenue	118		73		62	%	Mileage Plan other revenue	112		94		19	%
Cargo and other	Cargo and other	57		39		46	%	Cargo and other	58		44		32	%
Total operating revenues	Total operating revenues	$	1,527	$	421	263	%	Total operating revenues	$	1,681	$	797	111	%

Passenger Revenue

On a consolidated basis, Passenger revenue for the ~~second~~first quarter of ~~2021~~2022 increased by ~~$1.0 billion,~~$852 million, or 129%, primarily driven by a significant increase in passenger ~~traffic. In~~traffic and bolstered by a 17% improvement in ticket yields. January and February 2022 results were negatively impacted by the ~~second quarter of 2020,~~omicron variant; however, surging demand in March by both business and leisure travelers drove meaningful improvements to year-over-year results.

We expect to see continued growth to Passenger revenue as we ~~experienced a near complete loss of demand~~progress through 2022 driven by ~~the COVID-19 pandemic. As recovery has taken hold, including wide availability of the vaccine~~high demand and ~~removal of restrictions throughout the markets we serve, demand for air travel has~~ increased ~~exponentially driven primarily by leisure travelers.~~capacity.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue increased by ~~$45~~$18 million, or ~~62%~~19%, as compared to the same prior-year ~~period,~~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. ~~Performance of~~

We expect to see increases to Mileage Plan other ~~revenues outpaced all other~~ revenue ~~sources, and resulted in~~for the ~~best performance~~remainder of 2022, driven by higher commissions from the ~~program ever in the second quarter of 2021.~~new co-branded credit card agreement.

Cargo and other

On a consolidated basis, Cargo and other revenue for the ~~second~~first quarter of ~~2021~~2022 increased by ~~$18~~$14 million, or ~~46%~~32%, as compared to the same prior-year ~~period. The increase is primarily due to the return of all three~~period as our dedicated freighters ~~back to~~were running below full capacity in the ~~second~~first quarter of ~~2021, coupled~~2021. Additional departures also provided incremental belly cargo activity in the first quarter of 2022 compared with the prior year.

We expect to see increases to cargo and other revenue for the remainder of 2022, driven by increased belly cargo activity as we increase scheduled departures.

OPERATING EXPENSES

Total operating expenses increased ~~$269~~$925 million, or ~~38%~~97%, compared to the ~~second~~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 June 30,							Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Fuel expense	Fuel expense	$	274	$	59	364	%	Fuel expense	$	347	$	203	71	%
Non-fuel operating expenses, excluding special items	Non-fuel operating expenses, excluding special items	1,234		942		31	%	Non-fuel operating expenses, excluding special items	1,461		1,137		28	%
Payroll Support Program grant wage offset	Payroll Support Program grant wage offset	(503)		(362)		39	%	Payroll Support Program grant wage offset	—		(411)		NM
Special items - impairment charges and other		(4)		69		(106)	%
Special items - fleet transition and related charges								Special items - fleet transition and related charges	75		18		NM
Special items - restructuring charges	Special items - restructuring charges	(23)		—		NM		Special items - restructuring charges	—		11		NM
Special items - merger-related costs		—		1		(100)	%

Total operating expenses	Total operating expenses	$	978	$	709	38	%	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 increased ~~$215~~$144 million, or 71%, compared to the ~~second~~first quarter of ~~2020.~~2021. The elements of the change are illustrated in the following table:


		Three Months Ended June 30,									Three Months Ended March 31,
		2021				2020					2022				2021
(in millions, except for per gallon amounts)	(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal		(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	Raw or "into-plane" fuel cost	$	330	$	1.96	$	60	$	1.11	Raw or "into-plane" fuel cost	$	504	$	2.91	$	222	$	1.77
(Gain)/loss on settled hedges	(Gain)/loss on settled hedges	(10)		(0.06)		5		0.09		(Gain)/loss on settled hedges	(50)		(0.29)		3		0.02
Consolidated economic fuel expense	Consolidated economic fuel expense	320		1.90		$	65	$	1.20	Consolidated economic fuel expense	$	454	$	2.62	$	225	$	1.79
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(46)		(0.27)		(6)		(0.11)		Mark-to-market fuel hedge adjustments	(107)		(0.62)		(22)		(0.18)
GAAP fuel expense	GAAP fuel expense	$	274	$	1.63	$	59	$	1.09	GAAP fuel expense	$	347	$	2.00	$	203	$	1.61
Fuel gallons	Fuel gallons	168				54				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 June 30, 2021~~costs. Fuel consumption increased by 47 million gallons, consistent with an increase in departures. Raw fuel expense per gallon increased by approximately ~~77%~~64% due to 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 increase in raw fuel price per gallon during the ~~second~~first quarter of ~~2021~~2022 was primarily driven by a ~~24%~~64% increase in crude oil ~~prices. This is coupled with an increase in consumption of 114 million gallons, on an increase in scheduled departures.~~prices when compared to the prior year.

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.

Gains recognized for hedges that settled during the ~~second~~first quarter were ~~$10~~$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 June 30,							Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Wages and benefits	Wages and benefits	$	510	$	472	8	%	Wages and benefits	$	606	$	493	23	%
Variable incentive pay	Variable incentive pay	34		16		113	%	Variable incentive pay	36		33		9	%
Aircraft maintenance	Aircraft maintenance	102		45		127	%	Aircraft maintenance	135		81		67	%
Aircraft rent	Aircraft rent	62		74		(16)	%	Aircraft rent	73		62		18	%
Landing fees and other rentals	Landing fees and other rentals	144		83		73	%	Landing fees and other rentals	138		129		7	%
Contracted services	Contracted services	54		30		80	%	Contracted services	78		51		53	%
Selling expenses	Selling expenses	41		4		925	%	Selling expenses	58		33		76	%
Depreciation and amortization	Depreciation and amortization	98		107		(8)	%	Depreciation and amortization	102		97		5	%
Food and beverage service	Food and beverage service	35		7		400	%	Food and beverage service	41		23		78	%
Third-party regional carrier expense	Third-party regional carrier expense	37		26		42	%	Third-party regional carrier expense	42		30		40	%
Other	Other	117		78		50	%	Other	152		105		45	%
Total non-fuel operating expenses, excluding special items	Total non-fuel operating expenses, excluding special items	$	1,234	$	942	31	%	Total non-fuel operating expenses, excluding special items	$	1,461	$	1,137	28	%

29For 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 increased during the ~~second~~first quarter of ~~2021~~2022 by ~~$38~~$113 million, or 8%23%, compared to ~~2020.~~2021. The primary components of Wages and benefits are shown in the following table:


		Three Months Ended June 30,							Three Months Ended March 31,
(in millions)	(in millions)	2021		2020		% Change		(in millions)	2022		2021		% Change
Wages	Wages	$	386	$	350	10	%	Wages	$	467	$	357	31	%
Pension - Defined benefit plans service cost	Pension - Defined benefit plans service cost	13		13		—	%	Pension - Defined benefit plans service cost	11		13		(15)	%
Defined contribution plans	Defined contribution plans	26		30		(13)	%	Defined contribution plans	38		32		19	%
Medical and other benefits	Medical and other benefits	59		54		9	%	Medical and other benefits	56		65		(14)	%
Payroll taxes	Payroll taxes	26		25		4	%	Payroll taxes	34		26		31	%
Total wages and benefits	Total wages and benefits	$	510	$	472	8	%	Total wages and benefits	$	606	$	493	23	%

Wages increased ~~$36~~$110 million, or ~~10%~~31%, on a ~~20%~~26% increase in FTEs. Increased wages as compared to the prior period are primarily the result of ~~leaves of absence taken~~the increase in FTEs as Alaska and ~~reduction~~Horizon continue their recovery from the pandemic and ramp up operations. Increased expense for defined contribution plans and payroll taxes are in ~~executive pay and hours for management employees in 2020 which were not repeated in 2021.~~line with the related increase to wages.

~~Defined contribution plan expense~~Medical and other benefits decreased ~~13%~~ as compared to ~~2020~~2021 as a result of ~~a one-time~~an adjustment ~~recorded in the second quarter of 2021 for employer contributions~~ to ~~those participating in incentive leave~~prior-period reserves and structural changes to benefit programs.

~~Variable Incentive Pay~~

Variable incentive pay expense increased $18 million during the second quarter of 2021 compared to the same period in 2020 on increased expectation of achievement of key financial and operational metrics.

Aircraft Maintenance

Aircraft maintenance expense increased ~~by $57~~$54 million, ~~during the second quarter of 2021~~or 67%, compared to the ~~same period in 2020. This~~first quarter of 2021. Higher maintenance expense is ~~primarily due~~the result of charges recorded for maintenance work to return leased aircraft and increased power-by-the-hour charges on covered aircraft, including a ~~significant increase in utilization of aircraft as we return to capacity, resulting in increased engine events, heavy checks and power-by-the-hour expense.~~new contract for our regional fleet.

Aircraft Rent

Aircraft rent expense ~~decreased~~increased by ~~$12~~$11 million, or ~~16%~~18%, during the ~~second~~first quarter of ~~2021~~2022 compared to the same period in ~~2020~~2021 primarily ~~the~~as a result of leased Boeing 737-9 deliveries in the ~~full impairment taken~~second half of 2021 and first quarter of 2022.

We expect aircraft rent to increase in 2022 on ~~certain~~the annualization of expense and additional deliveries of leased ~~Airbus~~737-9 aircraft ~~in 2020.~~and incremental aircraft flown by SkyWest under our long-term capacity purchase agreement.

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

Landing fees and other rentals increased by ~~$61~~$9 million, or ~~73%~~7%, during the ~~second~~first quarter of ~~2021~~2022. The increase compared to the same period in ~~2020 primarily~~2021 is due to ~~a significant~~an increase in ~~departures. Increased departure-related costs were coupled~~departures as demand returns, partially offset by ~~rate increases~~decreases in rates at ~~many~~some of ~~our hub~~the airports ~~including the renegotiated lease at our largest airport hub Seattle-Tacoma International Airport.~~we service.

Contracted Services

Contracted services increased by ~~$24~~$27 million, or ~~80%~~53%, during the ~~second~~first quarter of ~~2021~~2022 compared to the same period in ~~2020~~2021 driven primarily by 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 increased by ~~$37~~$25 million, or 76%, during the ~~second~~first quarter of ~~2021~~2022 compared to the same period in ~~2020,~~2021, primarily driven by ~~a significant~~an increase in distribution costs and credit card commissions incurred with the ~~increase of~~ overall ~~travel.~~revenue recovery.

Food and Beverage Service

Food and beverage service increased by ~~$28~~$18 million, or 78%, during the ~~second~~first quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. This increase is ~~consistent~~in line with the ~~overall~~86% increase in revenue passengers as compared to the prior-year ~~period, as well as the return of many of our on-board products in the second quarter of 2021.~~period.

Third-party Regional Carrier Expense

Third-party regional carrier expense, which represents ~~payments made to~~expenses associated with SkyWest under our CPA, increased by ~~$11~~$12 million, or ~~42%~~40%, during the ~~second~~first quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. The increase in expense is ~~primarily~~ due to ~~increases in~~incremental departures flown by SkyWest as compared to the prior-year period. ~~Increased expense~~In addition, a benefit was ~~partially offset by a~~recorded in 2021 associated with the pass through of CARES Act PSP funding ~~of $5 million 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 ~~second quarter to offset~~CPA with SkyWest ~~pilot and flight attendant wages and benefits.~~through the year.

Other ~~expense~~Expense

Other expense increased ~~$39~~$47 million, or ~~50%~~45%, during the ~~second~~first quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. Increased expense is primarily driven by incremental crew hotel stays and per diem, consistent with the overall increase in departures and ~~capacity, as well as additional expense for professional services.~~capacity.

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

We recorded ~~a benefit~~non-recurring expense associated with ~~impairment~~fleet transition and ~~other~~related charges of $4$75 million in the ~~second~~first quarter of ~~2021, consisting of updated estimates for 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 a benefit for workforce restructuring of $23 million in the second quarter of 2021 primarily as a result of issuing recall notices to pilots on incentive lines for periods earlier than were previously anticipated.

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 an adjusted pretax loss of ~~$24~~$174 million in the ~~second~~first quarter of ~~2021,~~2022, compared to aan adjusted pretax loss of ~~$471~~$444 million in the ~~second~~first quarter of ~~2020.~~2021. The ~~$447~~$270 million improvement was primarily driven by ~~an $847~~a $737 million increase in Passenger revenues as a result of increased demand for air travel, offset by a ~~$238~~$301 million increase in non-fuel operating costs and a ~~$208~~$207 million increase in economic fuel cost.

~~The increase in Mainline passenger revenue for the second quarter of 2021 was primarily driven by a significant increase in traffic and capacity due to increased demand for air travel.~~

Non-fuel operating expenses increased significantly, driven by increased variable costs, largely consistent with the overall increase in capacity and departures. Higher ~~raw~~economic fuel prices, combined with ~~a significant increase in~~more gallons consumed, drove the increase in Mainline fuel expense.

Regional

Regional operations ~~generated~~recorded an adjusted pretax loss of ~~$56~~$55 million in the ~~second~~first quarter of ~~2021,~~2022, compared to aan adjusted pretax loss of ~~$129~~$150 million in the ~~second~~first quarter of ~~2020. The improved pretax loss was~~2021. Improved results were attributable to a ~~$195~~$113 million increase in operating revenues, partially offset by a ~~$76 million increase in non-fuel operating expenses and a $46~~$21 million increase in fuel costs.

Regional passenger ~~revenue~~revenues increased significantly compared to the ~~second~~first quarter of ~~2020,~~2021, primarily driven by increased ~~traffic~~load factors and ~~capacity driven by the resurgence~~a 31% improvement in ~~demand for air travel.~~yield.

~~The~~Higher economic fuel prices, combined with a significant increase in ~~non-fuel operating expenses is primarily due to increased variable costs and higher CPA rates on an~~gallons consumed, drove the increase in ~~capacity, offset by the pass through of CARES Act PSP funds recorded in the second quarter of 2021.~~Regional fuel expense.

Horizon

Horizon ~~achieved~~recorded an adjusted pretax profit of $15 million in the second quarter of 2021 compared to $8 million in the second quarter of 2020. Increased profit is primarily the result of increased capacity flown, coupled with substantial progress in cost reduction efforts.

~~COMPARISON OF SIX MONTHS ENDED JUNE 30, 2021 TO SIX MONTHS ENDED JUNE 30, 2020~~

~~Our consolidated net income for the six months ended June 30, 2021 was $266 million, or $2.10 per diluted share, compared to a net~~ loss ~~of $446 million, or $3.62 per diluted share, for the six months ended June 30, 2020.~~

Our adjusted net loss for the six months ended June 30, 2021 was $474 million, or $3.75 per diluted share, compared to an adjusted net loss of $541 million, or $4.40 per diluted share, in the six months ended June 30, 2020. The following tables reconcile our adjusted net loss and adjusted diluted EPS to amounts as reported in accordance with GAAP:
Six Months Ended June 30,
2021 2020
(in millions, except per share amounts) Dollars Diluted EPS Dollars Diluted EPS
Reported GAAP net income (loss) and diluted EPS $ 266 $ 2.10 $ (446) $ (3.62)
Payroll Support Program grant wage offset (914) (7.23) (362) (2.94)
Mark-to-market fuel hedge adjustments (68) (0.54) 3 0.02
Special items - merger-related costs — — 4 0.03
Special items - impairment charges and other 14 0.11 229 1.86
Special items - restructuring charges (12) (0.09) — —
Income tax effect of reconciling items above 240 1.90 31 0.25
Non-GAAP adjusted net loss per share $ (474) $ (3.75) $ (541) $ (4.40)

~~Our operating costs per ASM are summarized below:~~
Six Months Ended June 30,
(in cents) 2021 2020 % Change
Consolidated:
CASM 8.13 ¢ 13.59 ¢ (40) %
Less the following components:
Payroll Support Program grant wage offset (3.84) (1.85) 108 %
Aircraft fuel, including hedging gains and losses 2.00 2.26 (12) %
Special items - impairment charges and other 0.07 1.17 (94) %
Special items - restructuring charges (0.05) — NM
Special items - merger-related costs — 0.01 (100) %
CASM excluding fuel and special items 9.95 ¢ 12.00 ¢ (17) %
Mainline:
CASM 6.72 ¢ 12.39 ¢ (46) %
Less the following components:
Payroll Support Program grant wage offset (4.21) (1.91) 120 %
Aircraft fuel, including hedging gains and losses 1.75 2.12 (17) %
Special items - impairment charges and other 0.07 0.99 (93) %
Special items - restructuring charges and other (0.06) — NM
Special items - merger-related costs — 0.02 (100) %
CASM excluding fuel and special items 9.17 ¢ 11.17 ¢ (18) %

~~OPERATING REVENUES~~

~~Total operating revenues increased $267 million, or 13%, during the first six months of 2021 compared to the same period in 2020. The changes are summarized in the following table:~~
Six Months Ended June 30,
(in millions) 2021 2020 % Change
Passenger revenue $ 2,011 $ 1,790 12 %
Mileage Plan other revenue 212 182 16 %
Cargo and other 101 85 19 %
Total operating revenues $ 2,324 $ 2,057 13 %

~~Passenger Revenue~~

On a consolidated basis, Passenger revenue for the first six months of 2021 increased by $221 million, or 12%, on a 28% increase in passenger traffic, driven primarily by rebounding demand for leisure travel experienced in the second quarter of 2021. As travel restrictions were removed, including the full removal of restrictions in the state of California in June of 2021, passenger counts increased dramatically as compared to the prior year. These improvements were offset by a decrease of 12% in yield, stemming from promotional activities undertaken to stimulate demand and increase bookings during what is typically a low booking period.

We expect to see continued improvement to Passenger revenue as we progress through 2021, driven by continued growth in demand and capacity, as well as improvements to business travel as employees return to work.

~~Mileage Plan other revenue~~

On a consolidated basis, Mileage Plan other revenue increased $30 million, or 16%, in the first six months of 2021 compared to the first six months of 2020, due largely to an increase in commission received from our affinity card partner stemming from growing consumer spend and incremental new card acquisitions.

~~Cargo and other~~

On a consolidated basis, Cargo and other revenue increased $16 million, or 19%, in the first six months of 2021 compared to the first six months of 2020. The increase is primarily due to the return of all three freighters back to full capacity in the second quarter of 2021, coupled with increased belly cargo activity as we increase scheduled departures.

~~We expect that our cargo and other revenues will be positively impacted as compared to 2020 due to the elimination of freighter limitations.~~

~~OPERATING EXPENSES~~

Total operating expenses decreased $730 million, or 27%, compared to the first six months of 2020. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:
Six Months Ended June 30,
(in millions) 2021 2020 % Change
Fuel expense $ 477 $ 443 8 %
Non-fuel operating expenses, excluding special items 2,371 2,352 1 %
Payroll Support Program grant wage offset (914) (362) 152 %
Special items - impairment charges and other 14 229 (94) %
Special items - restructuring charges (12) — NM
Special items - merger-related costs — 4 (100) %
Total operating expenses $ 1,936 $ 2,666 (27) %

~~Fuel Expense~~

~~Aircraft fuel expense increased $34 million, or 8%, compared to the six months ended June 30, 2020. The elements of the change are illustrated in the table:~~

Six Months Ended June 30,
2021 2020
(in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $ 552 $ 1.87 $ 430 $ 1.73
(Gain)/loss on settled hedges (7) (0.02) 10 0.04
Consolidated economic fuel expense 545 1.85 $ 440 $ 1.77
Mark-to-market fuel hedge adjustments (68) (0.23) 3 0.01
GAAP fuel expense $ 477 $ 1.62 $ 443 $ 1.78
Fuel gallons 294 248

The raw fuel price per gallon increased 8% due to higher West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil, as well as refining margins associated with the conversion of crude oil to jet fuel. The increase in raw fuel price per gallon during the first six months of 2021 was driven by a 10% increase in crude oil prices, offset by a 65% decrease in refining margins.

~~Gains recognized for hedges that settled in the first six months of 2021 were $7 million, compared to losses~~ of $10 million in the ~~same period in 2020. These amounts represent cash received from settled hedges, offset by cash paid for premium expense.~~

~~We expect our economic fuel cost per gallon in the third~~first quarter ~~to range between $1.95 and $2.00 per gallon based on current market West Coast jet fuel prices.~~

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

Six Months Ended June 30,
(in millions) 2021 2020 % Change
Wages and benefits $ 1,003 $ 1,084 (7) %
Variable incentive pay 67 23 191 %
Aircraft maintenance 183 160 14 %
Aircraft rent 124 155 (20) %
Landing fees and other rentals 273 214 28 %
Contracted services 105 102 3 %
Selling expenses 74 59 25 %
Depreciation and amortization 195 215 (9) %
Food and beverage service 58 56 4 %
Third-party regional carrier expense 67 63 6 %
Other 222 221 — %
Total non-fuel operating expenses, excluding special items $ 2,371 $ 2,352 1 %

~~Wages and Benefits~~

~~Wages and benefits decreased during the first six months~~ of ~~2021 by $81 million, or 7%. The primary components of wages and benefits are shown in the following table:~~
Six Months Ended June 30,
(in millions) 2021 2020 % Change
Wages $ 743 $ 803 (7) %
Pension—Defined benefit plans service cost 26 26 — %
Defined contribution plans 58 68 (15) %
Medical and other benefits 124 130 (5) %
Payroll taxes 52 57 (9) %
Total wages and benefits $ 1,003 $ 1,084 (7) %

Wages decreased $60 million, or 7%, on a 5% decrease in FTEs. Decreased wages as compared to the prior period are primarily the result of voluntary early-outs, as well as leaves of absence and incentive lines accepted in 2020 which carried into 2021. These reductions were offset by increased wages in the second quarter as we began to rebuild staffing and provide incentives to employees in response to increasing demand. Reductions to defined-contribution plan expense, medical and other benefits, and payroll taxes are a direct result of the decline in wages.

For the full year, we expect wages and benefits will increase compared to 2020 as we increase scheduled flying and return workers from incentive leaves or other absences to align with our expectation of increased demand. Additionally, as labor shortages continue to impact many of our markets, we expect to see continued wage pressure as we offer premium and bonus pay to attract and retain employees.

~~Variable Incentive Pay~~

Variable incentive pay expense increased $44 million, or 191%, during the first six months of 2021 as compared to the same period in 2020. The increase is primarily due to the expectation that incremental key targets will be achieved under the performance based pay program.

~~Aircraft Maintenance~~

Aircraft maintenance expense increased by $23 million, or 14%, during the first six months of 2021 compared to the same period in 2020. The increase is primarily due to increased component repairs which were delayed from 2020 as a result of increased flight hours, as well as increased power-by-the-hour combined with increased utilization of covered aircraft.

~~We expect full year aircraft maintenance expense to be higher than 2020 on increased aircraft utilization.~~

~~Landing fees and other rentals~~

Landing fees and other rentals increased by $59 million, or 28%, during the first six months of 2021 compared to the same period in 2020, primarily due to a significant increase in departures, combined with increased rates at certain of our airports.

~~For the full year we expect landing fees and other rentals to increase as compared to 2020 as we continue to increase capacity and departures on increased rates at many of our hub airports.~~

~~Selling Expense~~

Selling expense increased by $15 million, or 25%, during the first six months of 2021 compared to the same period in 2020, primarily driven by a significant increase in distribution costs and credit card commissions. Increased marketing spend and sponsorship costs given the return of professional sports and events also contributed to the year-over-year increase.

We expect full year selling expense will increase in-line with the increase to revenue as a result of increased distribution costs on higher bookings, as well as increased sponsorship and marketing costs.

~~Third-party Regional Carrier Expense~~

Third-party regional carrier expense, which represents payments made to SkyWest under our CPA, increased $4 million, or 6%, during the first six months of 2021 compared to the same period in 2020. The increase is primarily due to a 26% increase in SkyWest departures as compared to the prior year. Increased SkyWest activity was offset by the receipt and recognition of $14 million in pass-through of CARES Act PSP funding for pilot and flight attendant wages and benefits.

~~For the full year, we expect third-party regional carrier expense to be higher than 2020 driven by increased departures.~~

~~Special Items - Impairment and other charges~~

We recorded impairment and other charges of $14 million in the first six months of 2021, consisting of costs associated with leased aircraft that have been retired and removed from the operating fleet but not yet returned to the lessor. We continue to evaluate total estimated costs to return these permanently parked aircraft, and make updates to total expense where necessary.

~~Special Items - Restructuring charges~~

We recorded a restructuring benefit of $12 million in the first six months of 2021 primarily as a result of issuing recall notices to pilots on incentive lines for periods earlier than were previously anticipated.

~~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 reported an adjusted pretax loss was $468 million in the first six months of 2021,~~2022, compared to an adjusted pretax ~~loss~~income of $556 million in the same period in 2020. The $88 million improvement to pretax loss was driven by a $163 million increase in Mainline operating revenues coupled with a $28 million decrease in Mainline non-fuel operating expense. These improvements were offset by a $69 million increase in Mainline fuel expense.

As compared to the prior year, higher Mainline revenues are primarily attributable to a 25% increase in traffic on a 20 point increase in capacity, driven by the significant increase in demand recovering from the COVID-19 pandemic. Non-fuel operating expenses increased from higher variable costs on increased capacity, as well as rising wages and benefits expense as we expand our workforce to meet growing demand and leisure travel seasonality. Higher raw fuel prices, combined with increased consumption drove the growth in Mainline fuel expense.

~~Regional~~

~~Regional operations incurred an adjusted pretax loss of $206~~$11 million in the first ~~six months~~quarter of ~~2021, compared~~2021. The shift to an adjusted ~~pretax~~ loss of $202 million in the first six months of 2020. The increased loss was attributable to a $72 million increase in non-fuel operating expenses and a $36 million increase in fuel costs, offset by a $104 million increase in operating revenues.

~~The increase to regional revenues~~ is driven by ~~a 50% increase in traffic as compared to the prior-year period, also resulting in increased variable non-fuel operating expenses.~~

~~Horizon~~

Horizon achieved an adjusted pretax profit of $26 million in the first six months of 2021, compared to an adjusted pretax profit of $16 million in the same period in 2020, primarily due to improved operational performancelower CPA revenue on decreased departures, combined with incremental maintenance expense on E175 aircraft and ~~cost management.~~

higher wage and 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 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 ~~$1.0~~$2.9 billion, ~~bolstered by improved advance bookings for increased demand for air travel,~~ and ~~the receipt of $1.2 billion in payroll support funding~~cash flows from ~~the U.S. Treasury under extensions of CARES Act programs, $892 million of which is included in operating cash flow;~~operations;

•~~Repaid $681 million in debt, including the termination of the CARES Act loan, and the full repayment of two outstanding lines of credit;~~58 unencumbered aircraft that could be financed, if necessary;

•~~Decreased debt-to-capitalization ratio to 56% at June 30, 2021 from 61% at December 31, 2020;~~Combined bank line-of-credit facilities, with no outstanding borrowings, of $400 million.

•~~Finalized~~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 ~~previously announced amendment~~debt-to-capitalization ratio of 50%, within our stated target range of 40% to ~~the existing aircraft purchase agreement with Boeing, which significantly reduced our 2021 capital commitments and provides slide rights~~50%. Subsequent to ~~defer commitments from 2022 to later years, and;~~

•~~Maintained low capital expenditures, which are expected to be approximately $225~~quarter end, we received $184 million in ~~2021, including renegotiated timing~~federal tax refund as a result 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.~~carrying back losses from the 2020 tax year.

As the business ~~continues~~returns to ~~recover and returns to~~sustained profitability, reducing outstanding debt, normalizing our on-hand liquidity, and ~~strengthening~~reinforcing our balance sheet ~~is a~~remain high ~~priority. Based~~priorities. Our capital expenditures for 2022 are expected to be 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 zero to $100 million in the third quarter. This is lower than in the second quarter due to the expectation of no further government support and seasonal booking patterns that result in less cash bookings for future travel.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)	(in millions)	June 30, 2021			December 31, 2020			Change	(in millions)	March 31, 2022			December 31, 2021			Change
Cash and marketable securities	Cash and marketable securities	$	3,951		$	3,346		18 %	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	Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	103		%	94		%	9 pts	Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue	47		%	57		%	(10) pts
Total debt		3,188			3,495			(9) %
Long-term debt, net of current portion									Long-term debt, net of current portion	2,078			2,173			(4)%
Shareholders’ equity	Shareholders’ equity	$	3,324		$	2,988		11%	Shareholders’ equity	$	3,637		$	3,801		(4)%


Debt-to-capitalization, adjusted for operating leases	Debt-to-capitalization, adjusted for operating leases								Debt-to-capitalization, adjusted for operating leases
(in millions)	(in millions)	June 30, 2021			December 31, 2020			Change	(in millions)	March 31, 2022			December 31, 2021			Change
Long-term debt, net of current portion	Long-term debt, net of current portion	$	2,319		$	2,357		(2)%	Long-term debt, net of current portion	$	2,078		$	2,173		(4)%
Capitalized operating leases	Capitalized operating leases	1,485			1,558			(5)%	Capitalized operating leases	1,629			1,547			5%
COVID-19 related borrowings(a)		425			734			(42)%

Adjusted debt, net of current portion of long-term debt	Adjusted debt, net of current portion of long-term debt	$	4,229		$	4,649		(9)%	Adjusted debt, net of current portion of long-term debt	$	3,707		$	3,720		—%
Shareholders' equity	Shareholders' equity	3,324			2,988			11%	Shareholders' equity	3,637			3,801			(4)%
Total invested capital	Total invested capital	$	7,553		$	7,637		(1)%	Total invested capital	$	7,344		$	7,521		(2)%

Debt-to-capitalization, including operating leases	Debt-to-capitalization, including operating leases	56		%	61		%	(5) pts	Debt-to-capitalization, including operating leases	50		%	49		%	1 pt

~~(a)~~To best reflect our leverage, we included the remaining 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)	June 30, 2021		December 31, 2020		(in millions)	March 31, 2022		December 31, 2021
Current portion of long-term debt	Current portion of long-term debt	$	869	$	1,138	Current portion of long-term debt	$	292	$	366
Current portion of operating lease liabilities	Current portion of operating lease liabilities	263		290		Current portion of operating lease liabilities	272		268
Long-term debt, net of current portion		2,319		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	1,222		1,268		Long-term operating lease liabilities, net of current portion	1,357		1,279
Total adjusted debt	Total adjusted debt	4,673		5,053		Total adjusted debt	3,999		4,086
Less: Cash and marketable securities	Less: Cash and marketable securities	(3,951)		(3,346)		Less: Cash and marketable securities	(2,890)		(3,116)
Adjusted net debt	Adjusted net debt	$	722	$	1,707	Adjusted net debt	$	1,109	$	970

(in millions)	(in millions)	Twelve Months Ended June 30, 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)		$	(778)	$	(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	(712)		71		Payroll Support Program grant wage offset and special items	(468)		(925)
Mark-to-market fuel hedge adjustments	Mark-to-market fuel hedge adjustments	(79)		(8)		Mark-to-market fuel hedge adjustments	(132)		(47)
Depreciation and amortization	Depreciation and amortization	400		420		Depreciation and amortization	399		394
Aircraft rent	Aircraft rent	268		299		Aircraft rent	265		254
EBITDAR	EBITDAR	$	(901)	$	(993)	EBITDAR	$	708	$	361
Adjusted net debt to EBITDAR	Adjusted net debt to EBITDAR	(0.8x)		(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.

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ANALYSIS OF OUR CASH FLOWS

Cash Provided by Operating Activities

For the first ~~six~~three months of ~~2021,~~2022, net cash provided by operating activities was ~~$1.0 billion,~~$287 million, compared to ~~$321~~$167 million during the same period in ~~2020.~~2021. The ~~$686~~$120 million increase in our operating cash flows is primarily attributable to ~~a $712 million improvement to net income, aided by the receipt and recognition of $892 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 continued increases in advanced bookings~~expenses and ~~a significant reduction in refund activity when~~greater payout on our performance based pay program as compared to ~~the first six months of 2020.~~2021.

Cash Used in Investing Activities

Cash provided by investing activities was $39 million during the first three months of 2022, compared to $543 million used in investing activities ~~was $1.1 billion during the first six months of 2021, compared to $124 million~~ during the same period of ~~2020.~~2021. The ~~increase~~shift to cash ~~used in~~provided by investing activities is primarily due to net ~~purchases~~sales of marketable securities, which were ~~$963~~$328 million in the first ~~six~~three months of ~~2021,~~2022, compared to net ~~sales~~purchases of ~~$34~~$511 million in the ~~six~~three months ended ~~June 30, 2020. The shift to net purchases is primarily driven~~March 31, 2021. This activity was partially offset by ~~additional~~an increase in cash ~~on hand from increased operating cash flow~~used for capital expenditures of $261 million for aircraft purchase deposits and ~~the PSP program, which allowed the Company to invest additional funds.~~other property and equipment.

Cash Provided by (Used in) Financing Activities

Cash used in financing activities was ~~$281~~$168 million during the first ~~six~~three months of ~~2021~~2022, compared to cash provided by financing activities of ~~$1.1 billion~~$82 million during the same period in ~~2020.~~2021. During the first ~~six~~three months of ~~2021,~~2022, we had no new proceeds from issuance of debt and utilized cash on hand to repay ~~$681~~$170 million of outstanding long-term debt, compared to debt proceeds of $189 million and payments of ~~$125~~$115 million during the same period in 2020. These payments were offset by proceeds from debt issuances of $363 million, primarily a result of the loan portion of the proceeds from the CARES Act PSP, compared to $1.3 billion issued in 2020 in response to the COVID-19 pandemic.2021.

~~CONTRACTUAL OBLIGATIONS AND~~MATERIAL CASH COMMITMENTS

Aircraft Commitments

As of ~~June 30, 2021, we have~~March 31, 2022, Alaska has firm orders to purchase 7567 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 an agreement with SkyWest Airlines to expand ~~our~~their long-term capacity purchase agreement by ~~eight~~six Embraer E175 aircraft in ~~2022. Alaska also~~2022 and one in 2023. Horizon has ~~cancellable~~commitments to purchase ~~commitments for 30 Airbus A320neo~~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 ~~39 B737-9 MAX~~up to 11 additional Boeing 737-9 aircraft and 41 additional Boeing 737-10 aircraft with deliveries ~~from~~between 2024 ~~through 2026,~~ and ~~Horizon has options to acquire 21 E175 aircraft with deliveries from 2023 through 2024.~~2026. Options will be exercised only if we believe return on invested capital targets can be met over the long term.

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The following table summarizes our anticipated fleet count by year, as of ~~June 30, 2021:~~March 31, 2022:


		Actual Fleet	Anticipated Fleet Activity(a)								Actual Fleet	Anticipated Fleet Activity(a)
Aircraft	Aircraft	June 30, 2021	2021 Additions	2021 Removals	Dec 31, 2021	2022 Changes	Dec 31, 2022	2023 Changes	Dec 31, 2023	Aircraft	March 31, 2022	2022 Additions	2022 Removals	Dec 31, 2022	2023 Changes	Dec 31, 2023	2024 Changes	Dec 31, 2024
B737 Freighters		3	—	—	3	—	3	—	3
737 Freighters(b)										737 Freighters(b)	3	—	—	3	—	3	—	3
B737-700	B737-700	11	—	—	11	—	11	—	11	B737-700	11	—	—	11	—	11	—	11
B737-800(b)	B737-800(b)	61	—	—	61	—	61	—	61	B737-800(b)	61	—	—	61	—	61	—	61
B737-900	B737-900	12	—	—	12	—	12	—	12	B737-900	12	—	—	12	—	12	—	12
B737-900ER	B737-900ER	79	—	—	79	—	79	—	79	B737-900ER	79	—	—	79	—	79	—	79
B737-9 MAX		5	7	—	12	31	43	22	65
A320(b)		21	7	(1)	27	(3)	24	(24)	—
B737-8										B737-8	—	—	—	—	5	5	5	10
B737-9										B737-9	19	23	—	42	28	70	7	77
B737-10										B737-10	—	—	—	—	—	—	6	6
A320(d)										A320(d)	30	—	(14)	16	(16)	—	—	—
A321neo	A321neo	10	—	—	10	—	10	—	10	A321neo	10	—	—	10	(10)	—	—	—
Total Mainline Fleet	Total Mainline Fleet	202	14	(1)	215	28	243	(2)	241	Total Mainline Fleet	225	23	(14)	234	7	241	18	259
Q400 operated by Horizon(c)		32	—	—	32	—	32	—	32
E175 operated by Horizon(c)		30	—	—	30	5	35	4	39
E175 operated by third party(c)		32	—	—	32	8	40	—	40
Total Regional Fleet		94	—	—	94	13	107	4	111
Q400 operated by Horizon(d)										Q400 operated by Horizon(d)	32	—	(8)	24	(24)	—	—	—
E175 operated by Horizon										E175 operated by Horizon	30	3	—	33	6	39	—	39
E175 operated by third party										E175 operated by third party	36	6	—	42	1	43	—	43
Total Regional Fleet(c)										Total Regional Fleet(c)	98	9	(8)	99	(17)	82	—	82
Total	Total	296	14	(1)	309	41	350	2	352	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 June 30, 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. We have announced plans to return 12~~as well as the subsequent replacement of ~~these aircraft to operating service, seven of which are planned for 2021 and five for 2022.~~passenger aircraft.

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

(d)In March 2022, management announced its intention to accelerate the ~~terms of our capacity purchase agreement with a third party, in 2023 an additional spare aircraft will be leased to support the operational integrity~~removal of the ~~network.~~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.

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

Third Quarter 2021		100	$60	$2
Fourth Quarter 2021		90	$61	$3
Remainder of 2021		190	$60	$2
First Quarter 2022		80	$67	$3

Second Quarter 2022	Second Quarter 2022	60	$66	$3	Second Quarter 2022	50	%	$71	$3
Third Quarter 2022	Third Quarter 2022	40	$70	$3	Third Quarter 2022	50	%	$80	$3
Fourth Quarter 2022	Fourth Quarter 2022	20	$71	$3	Fourth Quarter 2022	40	%	$83	$5
Full Year 2022	Full Year 2022	200	$68	$3	Full Year 2022	47	%	$78	$4
First Quarter of 2023					First Quarter of 2023	30	%	$84	$6
Second Quarter of 2023					Second Quarter of 2023	20	%	$92	$7
Third Quarter of 2023					Third Quarter of 2023	10	%	$100	$8
Full Year 2023					Full Year 2023	15	%	$90	$7

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Contractual Obligations

The following table provides a summary of our contractual obligations as of ~~June 30, 2021.~~March 31, 2022. For agreements with variable terms, amounts included reflect our minimum obligations.


(in millions)	(in millions)	Remainder of 2021		2022		2023		2024		2025		Beyond 2025		Total		(in millions)	Remainder of 2022		2023		2024		2025		2026		Beyond 2026		Total
Current and long-term debt obligations		$	227	$	796	$	334	$	240	$	261	$	1,353	$	3,211
Debt obligations																Debt obligations	$	201	$	334	$	240	$	261	$	176	$	1,176	$	2,388
Aircraft lease commitments(a)	Aircraft lease commitments(a)	162		280		219		167		159		633		1,620		Aircraft lease commitments(a)	235		255		198		193		188		710		1,779
Facility lease commitments	Facility lease commitments	6		10		9		8		6		88		127		Facility lease commitments	13		16		9		8		8		86		140
Aircraft-related commitments(b)	Aircraft-related commitments(b)	107		1,458		1,207		291		76		12		3,151		Aircraft-related commitments(b)	1,159		1,781		414		111		47		275		3,787

Interest obligations (c)	Interest obligations (c)	55		98		72		57		51		175		508		Interest obligations (c)	50		95		71		53		53		132		454
Other obligations (d)	Other obligations (d)	89		184		189		196		197		898		1,753		Other obligations (d)	144		193		199		203		199		757		1,695
Total	Total	$	646	$	2,826	$	2,030	$	959	$	750	$	3,159	$	10,370	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 ~~June 30, 2021.~~March 31, 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 June 30, 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

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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.

4338


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~June 30, 2021,~~March 31, 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 ~~June 30, 2021.~~March 31, 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 ~~June 30, 2021,~~March 31, 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).

4439

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 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.

~~In the second quarter~~As of 2021, the Company issued 271,437 warrants to the United States Department 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 purchaseMarch 31, 2022, a total of ~~1,455,436~~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 ~~$52.25 (49,625~~$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”).


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

~~August 3, 2021~~May 5, 2022

4641

EXHIBIT INDEX
Exhibit
Number Exhibit
Description Form Date of First Filing Exhibit Number
3.1
Amended and Restated Certificate of Incorporation of Registrant
10-Q August 3, 2017 3.1
4.1†
Closing Date Warrant to Purchase Common Stock, dated April 8, 2021
4.2†
Closing Date Warrant to Purchase Common Stock, dated April 29, 2021
4.3†
Closing Date Warrant to Purchase Common Stock, dated April 29, 2021
4.4†
Closing Date Warrant to Purchase Common Stock, dated April 29, 2021
4.5†
Closing Date Warrant to Purchase Common Stock, dated June 3, 2021
4.6†
Promissory note, dated April 29, 2021, by Alaska Airlines, Inc., issuer, and each of Alaska Air Group, Inc. and Horizon Air Industries, Inc., as guarantors
10.1†
Payroll Support Program 3 Agreement, dated April 29, 2021, between Alaska Airlines, Inc., and the United States Department of the Treasury
10.2†
Warrant Agreement, dated April 29, 2021, between Alaska Air Group, Inc. and the United States Department of the Treasury
10.3†
Supplemental Agreement No. 16 to Purchase Agreement No. 3866 between the Boeing Company and Alaska Airlines, Inc.
10.4†
Supplemental Agreement No. 17 to Purchase Agreement No. 3866 between the Boeing Company and Alaska Airlines, Inc.
10.5†*
Amendment No. 15 to Purchase Agreement dated April 11, 2016, between Embraer S.A. and Horizon Air Industries, Inc.
10.6†
Alaska Air Group Performance Based Pay Plan, Amended and Restated May 6, 2021
10.7†
Alaska Air Group Operational Performance Rewards Plan Description, adopted January 3, 2005; Amended May 6, 2021
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.

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.

4742


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	2221
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	4338
ITEM 4.	CONTROLS AND PROCEDURES	4439
PART II.	OTHER INFORMATION	4540
ITEM 1.	LEGAL PROCEEDINGS	4540
ITEM 1A.	RISK FACTORS	4540
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4540
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	4540
ITEM 4.	MINE SAFETY DISCLOSURES	4640
ITEM 5.	OTHER INFORMATION	4641
ITEM 6.	EXHIBITS	4641
	SIGNATURES	4641


	Grants		Loans		Warrants		Total Proceeds
PSP 1	$	757	$	293	$	9	$	1,059
PSP 2	457		160		9		626
PSP 3	431		147		7		585
Total	$	1,645	$	600	$	25	$	2,270


	June 30, 2021		December 31, 2020
Related to marketable securities	$	10	$	23
Related to employee benefit plans	(485)		(498)
Related to interest rate derivatives	(12)		(19)
Total	$	(487)	$	(494)


	Six Months Ended June 30, 2021
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	1,578	$	433	$	0	$	0	$	2,011	$	0	$	2,011
CPA revenues	0		0		215		(215)		0		0		0
Mileage Plan other revenue	182		30		0		0		212		0		212
Cargo and other	99		0		0		2		101		0		101
Total Operating Revenues	1,859		463		215		(213)		2,324		0		2,324
Operating Expenses
Operating expenses, excluding fuel	1,877		551		179		(236)		2,371		(912)		1,459
Economic fuel	427		118		0		0		545		(68)		477
Total Operating Expenses	2,304		669		179		(236)		2,916		(980)		1,936
Nonoperating Income (Expense)
Interest income	13		0		0		0		13		0		13
Interest expense	(61)		0		(10)		0		(71)		0		(71)
Interest capitalized	6		0		0		0		6		0		6
Other - net	19		0		0		0		19		0		19
Total Nonoperating Income (Expense)	(23)		0		(10)		0		(33)		0		(33)
Income (Loss) Before Income Tax	$	(468)	$	(206)	$	26	$	23	$	(625)	$	980	$	355

	Six Months Ended June 30, 2020
	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$	1,459	$	331	$	0	$	0	$	1,790	$	0	$	1,790
CPA revenues	0		0		186		(186)		0		0		0
Mileage Plan other revenue	154		28		0		0		182		0		182
Cargo and other	83		0		0		2		85		0		85
Total Operating Revenues	1,696		359		186		(184)		2,057		0		2,057
Operating Expenses
Operating expenses, excluding fuel	1,905		479		160		(192)		2,352		(129)		2,223
Economic fuel	358		82		0		0		440		3		443
Total Operating Expenses	2,263		561		160		(192)		2,792		(126)		2,666
Nonoperating Income (Expense)
Interest income	25		0		0		(9)		16		0		16
Interest expense	(30)		0		(10)		10		(30)		0		(30)
Interest capitalized	4		0		0		0		4		0		4
Other - net	12		0		0		(1)		11		0		11
Total Nonoperating Income (Expense)	11		0		(10)		0		1		0		1
Income (Loss) Before Income Tax	$	(556)	$	(202)	$	16	$	8	$	(734)	$	126	$	(608)