Filed Pursuant to Rule 424(b)(3)
Registration Number 333-107177
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 7, 2003)

$150,000,000

Senior Convertible Notes due 2023
Common Stock, par value $1.00 per share

     This document supplements the prospectus of Alaska Air Group, Inc., dated October 7, 2003, relating to the notes issued in a private placement in March 2003 and the common stock issuable upon conversion of the notes. The information in this prospectus supplement replaces and supersedes the information set forth under the heading “Selling Security Holders” in the prospectus dated October 7, 2003.

     This prospectus supplement is incorporated by reference into, and should be read in conjunction with, the prospectus dated October 7, 2003. This prospectus supplement is not complete without, and may not be delivered or utilized except in connection with, the prospectus dated October 7, 2003.

     We have not applied for listing of the notes on any securities exchange or for quotation through any automated quotation system. The notes were offered to qualified institutional buyers as defined in, and in reliance on, Rule 144A under the Securities Act, in transactions exempt from, or not subject to, the registration requirements of the Securities Act.

     You should consider carefully the risks that we have described in “Risk Factors” beginning on page 4 of the prospectus dated October 7, 2003.

     Neither the Securities and Exchange Commission nor any state securities commission has approved or disproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is November 4, 2003

SELLING SECURITY HOLDERS

      We originally issued the notes in a private placement in March 2003. The notes were resold by the initial purchasers to “qualified institutional buyers” within the meaning of Rule 144A under the Securities Act in transactions exempt from registration under the Securities Act. The selling securityholders may from time to time offer and sell pursuant to this prospectus any or all of the notes listed below and shares of our common stock issued upon conversion of those notes. When we refer to the “selling securityholders” in this prospectus, we mean those persons listed in the table below, as well as the permitted pledgees, donees, assignees, transferees, successors and others who later hold any of the selling securityholders’ interests.

      The table below sets forth the name of each selling securityholder, the principal amount at maturity of notes, as of November 4, 2003, that each selling securityholder may offer pursuant to this prospectus and the number of shares of our common stock into which those notes are convertible. Unless set forth below, none of the selling securityholders has, or within the past three years has had, any material relationship with us or any of our predecessors or affiliates.

      We have prepared the table below based on information given to us by the selling securityholders on or prior to November 4, 2003. However, any or all of the notes or shares of our common stock listed below may be offered for sale pursuant to this prospectus by the selling securityholders from time to time. Accordingly, no estimate can be given as to the amounts of notes or our common stock that will be held by the selling securityholders upon consummation of any sales pursuant to this prospectus. In addition, the selling securityholders listed in the table below may have acquired, sold or transferred, in transactions exempt from the registration requirements of the Securities Act, some or all of their notes since the date as of which the information in the table is presented.

      Information about the selling securityholders may change over time. Any changed information will be set forth in prospectus supplements to the extent we are advised of the changes. From time to time, additional information concerning ownership of the notes and our common stock may rest with certain holders thereof not named in the table below and of whom we are unaware.

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| | Original Principal | | | | | | | | | | Number of Shares of | | | |
| | Amount of Notes | | Perentage of Notes | | Number of Shares of | | Common Stock | | Number of Shares of
| | Beneficially Owned | | Outstanding Before | | Common Stock Held | | Offered for Sale(1) | | Common Stock Held
Name | | That May be Sold | | Offering* | | Before Offering(1) | | (2) | | After Offering(3)
1976 Distribution Trust FBO A.R. Lauder / Zinterhofer(4) | | | 9,000 | | | | * | | | | 346 | | | | 346 | | | | — |
2000 Revocable Trust FBO A.R. Lauder / Zinterhofer (5) | | | 9,000 | | | | * | | | | 346 | | | | 346 | | | | — |
Advent Convertible Master (Cayman) L.P. (6) | | | 7,683,000 | | | | 5.12 | | | | 295,499 | | | | 295,499 | | | | — |
Aftra Health Fund(a) (7) | | | 270,000 | | | | * | | | | 10,384 | | | | 10,384 | | | | — |
AIG DKR SoundShore Oasis Holding Fund Ltd. (8) | | | 1,000,000 | | | | * | | | | 38,461 | | | | 38,461 | | | | — |
AIG DKR SoundShore Strategic Holding Fund Ltd.(9) | | | 1,000,000 | | | | * | | | | 38,461 | | | | 38,461 | | | | — |
Alcon Laboratories(10) | | | 465,000 | | | | * | | | | 17,884 | | | | 17,884 | | | | — |
Allentown City Firefighters Pension Plan(11) | | | 14,000 | | | | * | | | | 538 | | | | 538 | | | | — |
Allentown City Officers & Employees Pension Fund (12) | | | 20,000 | | | | * | | | | 769 | | | | 769 | | | | — |
Allentown City Police Pension Plan (13) | | | 280,000 | | | | * | | | | 10,769 | | | | 10,769 | | | | — |
Alpha US Sub Fund 4 LLC (14) | | | 336,000 | | | | * | | | | 12,923 | | | | 12,923 | | | | — |
Arapahoe County Colorado (15) | | | 58,000 | | | | * | | | | 2,230 | | | | 2,230 | | | | — |
Argent Classic Convertible Arbitrage Fund L.P. (16) | | | 300,000 | | | | * | | | | 11,538 | | | | 11,538 | | | | — |
Argent Classic Convertible Arbitrage Fund II, L.P. (17) | | | 100,000 | | | | * | | | | 3,846 | | | | 3,846 | | | | — |
Argent Classic Convertible Arbitrage (Bermuda) Fund Ltd. (18) | | | 700,000 | | | | * | | | | 26,923 | | | | 26,923 | | | | — |
Argent Low Lev Convertible Arbitrage Fund LLC (19) | | | 300,000 | | | | * | | | | 11,538 | | | | 11,538 | | | | — |
Argent Low Lev Convertible Arbitrage Fund Ltd. (20) | | | 1,800,000 | | | | 1.20 | | | | 69,230 | | | | 69,230 | | | | — |
Arlington County Employees Retirement System | | | 409,000 | | | | * | | | | 15,730 | | | | 15,730 | | | | — |
Asante Health Systems (21) | | | 803,000 | | | | * | | | | 30,884 | | | | 30,884 | | | | — |
Banc of America Capital Management, LLC (22)(a) | | | 1,350,000 | | | | * | | | | 51,923 | | | | 51,923 | | | | — |
Barclays Global Investors Diversified Alpha Plus Funds c/o Forest Investment Mngt. LLC (23)(a) | | | 487,000 | | | | * | | | | 18,730 | | | | 18,730 | | | | — |
BNP Paribas Arbitrage (24) | | | 6,500,000 | | | | 4.33 | | | | 249,999 | | | | 249,999 | | | | — |
BNP Paribas Equity Strategies, SNC (25) | | | 627,000 | | | | * | | | | 36,775 | | | | 24,115 | | | | 12,660 |
BP Amoco PLC Master Trust (26) | | | 482,000 | | | | * | | | | 18,538 | | | | 18,538 | | | | — |
British Virgin Islands Social Security Board (27) | | | 105,000 | | | | * | | | | 4,038 | | | | 4,038 | | | | — |
Calamos Convertible Fund — Calamos Investment Trust (28) | | | 2,500,000 | | | | 1.67 | | | | 96,153 | | | | 96,153 | | | | — |

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| | Original Principal | | | | | | | | | | Number of Shares of | | | |
| | Amount of Notes | | Percentage of Notes | | Number of Shares of | | Common Stock | | Number of Shares of
| | Beneficially Owned | | Outstanding Before | | Common Stock Held | | Offered for Sale(1) | | Common Stock Held
Name | | That May be Sold | | Offering* | | Before Offering(1) | | (2) | | After Offering(3)
Calamos Market Neutral Fund - Calamos Investment Trust (29) | | | 2,500,000 | | | | 1.67 | | | | 96,153 | | | | 96,153 | | | | — |
City and County of San Francisco Retirement System (30) | | | 1,776,000 | | | | 1.18 | | | | 68,307 | | | | 68,307 | | | | — |
City of New Orleans (31) | | | 245,000 | | | | * | | | | 9,423 | | | | 9,423 | | | | — |
City University of New York (32) | | | 181,000 | | | | * | | | | 6,961 | | | | 6,961 | | | | — |
CNH CA Master Account, L.P. (33) | | | 2,100,000 | | | | 1.40 | | | | 80,769 | | | | 80,769 | | | | — |
Convertible Securities Fund (34) | | | 20,000 | | | | * | | | | 769 | | | | 769 | | | | — |
Coastal Convertibles LTD (35) | | | 1,000,000 | | | | * | | | | 38,461 | | | | 38,461 | | | | — |
CooperNeff Convertible Strategies (Cayman) Master Fund, L.P. | | | 681,000 | | | | * | | | | 32,664 | | | | 26,192 | | | | 6,472 |
Delaware Pubic Employees Retirement System (36) | | | 1,862,000 | | | | 1.24 | | | | 71,615 | | | | 71,615 | | | | — |
Deutsche Bank Securities, Inc. (37)(a) | | | 4,309,000 | | | | 2.87 | | | | 165,730 | | | | 165,730 | | | | — |
Forest Fulcrum Fund LP (38)(a) | | | 1,344,000 | | | | * | | | | 51,692 | | | | 51,692 | | | | — |
Forest Global Convertible Fund Ltd., Class A-5 (39)(a) | | | 5,017,000 | | | | 3.34 | | | | 192,961 | | | | 192,961 | | | | — |
Forest Multi-Strategy Master Fund SPC, on behalf of its Multi-Strategy segregated portfolio (40)(a) | | | 1,681,000 | | | | 1.12 | | | | 64,653 | | | | 64,653 | | | | — |

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| | Original Principal | | | | | | | | | | Number of Shares of | | | |
| | Amount of Notes | | Percentage of Notes | | Number of Shares of | | Common Stock | | Number of Shares of
| | Beneficially Owned | | Outstanding Before | | Common Stock Held | | Offered for Sale(1) | | Common Stock Held
Name | | That May be Sold | | Offering* | | Before Offering(1) | | (2) | | After Offering(3)
Georgia Municipal (41) | | | 28,000 | | | | * | | | | 1,076 | | | | 1,076 | | | | — |
The Grable Foundation (42) | | | 97,000 | | | | * | | | | 3,730 | | | | 3,730 | | | | — |
Grady Hospital Foundation (43) | | | 159,000 | | | | * | | | | 6,115 | | | | 6,115 | | | | — |
HFR Arbitrage Fund (44) | | | 380,000 | | | | * | | | | 14,615 | | | | 14,615 | | | | — |
HFR CA Select Fund (45) | | | 800,000 | | | | * | | | | 30,769 | | | | 30,769 | | | | — |
Hotel Union & Hotel Industry of Hawaii Pension Plan (46) | | | 170,000 | | | | * | | | | 6,538 | | | | 6,538 | | | | — |
Independence Blue Cross (47) | | | 502,000 | | | | * | | | | 19,307 | | | | 19,307 | | | | — |
Jeffreies and Company Inc. (48) | | | 4,000 | | | | * | | | | 153 | | | | 153 | | | | — |
KBC Financial Products USA Inc. (49)(a) | | | 1,090,000 | | | | * | | | | 41,923 | | | | 41,923 | | | | — |
KBC Financial Products (Cayman Islands) Ltd. (50) | | | 3,515,000 | | | | 2.34 | | | | 135,192 | | | | 135,192 | | | | — |
Laurel Ridge Capital, L.P. (51) | | | 1,000,000 | | | | * | | | | 38,461 | | | | 38,461 | | | | — |
LLT Limited (52)(a) | | | 236,000 | | | | * | | | | 9,076 | | | | 9,076 | | | | — |
Lyxor/Forest Fund Ltd. c/o Forest Investment Mngt LLC (53)(a) | | | 2,112,000 | | | | 1.41 | | | | 81,230 | | | | 81,230 | | | | — |
Lyxor Master Fund Ref: Argent/LowLev CB c/o Argent (54) | | | 500,000 | | | | * | | | | 19,230 | | | | 19,230 | | | | — |
Mainstay Convertible Fund (55)(a) | | | 4,470,000 | | | | 2.98 | | | | 171,922 | | | | 171,922 | | | | — |
Mainstay VP Convertible Fund (56)(a) | | | 2,120,000 | | | | * | | | | 81,538 | | | | 81,538 | | | | — |

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| | Original Principal | | | | | | | | | | Number of Shares of | | | |
| | Amount of Notes | | Percentage of Notes | | Number of Shares of | | Common Stock | | Number of Shares of
| | Beneficially Owned | | Outstanding Before | | Common Stock Held | | Offered for Sale(1) | | Common Stock Held
Name | | That May be Sold | | Offering* | | Before Offering(1) | | (2) | | After Offering(3)
Merrill Lynch Insurance Group (57) | | | 402,000 | | | | * | | | | 15,461 | | | | 15,461 | | | | — |
Municipal Employees (58) | | | 286,000 | | | | * | | | | 10,999 | | | | 10,999 | | | | — |
Nations Convertible Securities Fund (59) | | | 1,330,000 | | | | * | | | | 51,153 | | | | 51,153 | | | | — |
New Orleans Firefighters Pension / Relief Fund (60) | | | 163,000 | | | | * | | | | 6,269 | | | | 6,269 | | | | — |
New York Life Insurance Company (Post 82) (61)(a) | | | 4,900,000 | | | | 3.27 | | | | 188,461 | | | | 188,461 | | | | — |
New York Life Insurance Company (Pre 82) (62)(a) | | | 2,245,000 | | | | 1.50 | | | | 86,346 | | | | 86,346 | | | | — |
New York Life Separate Account #7 (63)(a) | | | 105,000 | | | | * | | | | 4,038 | | | | 4,038 | | | | — |
Occidental Petroleum Corporation (64) | | | 323,000 | | | | * | | | | 12,423 | | | | 12,423 | | | | — |
Ohio Bureau of Workers Compensation (65) | | | 217,000 | | | | * | | | | 8,346 | | | | 8,346 | | | | — |
Policeman and Firemen Retirement System of the City of Detroit (66) | | | 675,000 | | | | * | | | | 25,961 | | | | 25,961 | | | | — |
Polygon Global Opportunities Master Fund (67) | | | 3,000,000 | | | | 2.00 | | | | 115,384 | | | | 115,384 | | | | — |
Pro-mutual (68) | | | 902,000 | | | | * | | | | 34,692 | | | | 34,692 | | | | — |
Relay 11 Holdings Co. c/o Forest Investment Mngt. LLC (69)(a) | | | 308,000 | | | | * | | | | 11,846 | | | | 11,846 | | | | — |
RBC Alternative Assets LP c/o Forest Investment Mngt. LLC (70)(a) | | | 410,000 | | | | * | | | | 15,769 | | | | 15,769 | | | | — |
San Diego County Employee Retirement Association (71) | | | 1,000,000 | | | | * | | | | 38,461 | | | | 38,461 | | | | — |
Silverback Master Ltd. | | | 3,500,000 | | | | 2.33 | | | | 134,615 | | | | 134,615 | | | | — |

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| | Original Principal | | | | | | | | | | Number of Shares of | | | |
| | Amount of Notes | | Percentage of Notes | | Number of Shares of | | Common Stock | | Number of Shares of
| | Beneficially Owned | | Outstanding Before | | Common Stock Held | | Offered for Sale(1) | | Common Stock Held
Name | | That May be Sold | | Offering* | | Before Offering(1) | | (2) | | After Offering(3)
Singlehedge U.S Convertible Arbitrage Fund | | | 103,000 | | | | * | | | | 3,961 | | | | 3,961 | | | | — |
Sphinx Convertible Arb Fund Faster Fund Ltd. (72) | | | 179,000 | | | | * | | | | 6,884 | | | | 6,884 | | | | — |
Sphinx Convertible Arbitrage SPC c/o Forest Investment Mngt. LLC (73)(a) | | | 179,000 | | | | * | | | | 6,884 | | | | 6,884 | | | | — |
SSI Blended Market Neutral L.P. (74) | | | 326,000 | | | | * | | | | 12,538 | | | | 12,538 | | | | — |
SSI Hedge Convertible Market Neutral L.P. (75) | | | 352,000 | | | | * | | | | 13,538 | | | | 13,538 | | | | — |
State of Maryland Retirement Agency (76) | | | 3,843,000 | | | | 2.56 | | | | 147,807 | | | | 147,807 | | | | — |
Sturgeon Limited (77) | | | 89,000 | | | | * | | | | 3,423 | | | | 3,423 | | | | — |
Tag Associates (78) | | | 71,000 | | | | * | | | | 2,730 | | | | 2,730 | | | | — |
TCW Group, Inc. (79) | | | 4,390,000 | | | | 2.93 | | | | 168,845 | | | | 168,845 | | | | — |
Topanga XI | | | 1,146,000 | | | | * | | | | 44,076 | | | | 44,076 | | | | — |
Trustmark Insurance (80) | | | 837,000 | | | | * | | | | 32,192 | | | | 32,192 | | | | — |
Univest Convertible Arbitrage Fund Ltd. c/o Forest Investment Mngt. LLC (81)(a) | | | 308,000 | | | | * | | | | 11,846 | | | | 11,846 | | | | — |
Viacom Inc. Pension Plan Master Trust (82) | | | 15,000 | | | | * | | | | 576 | | | | 576 | | | | — |
Wolverine Asset Management, LLC (83) | | | 2,229,000 | | | | 1.49 | | | | 85,730 | | | | 85,730 | | | | — |
Xavex Convertible 4 Fund c/o Forest Investment Mngt. LLC (84)(a) | | | 225,000 | | | | * | | | | 8,653 | | | | 8,653 | | | | — |
Xavex Convertible Arbitrage 2 Fund (85) | | | 100,000 | | | | * | | | | 3,846 | | | | 3,846 | | | | — |
Zazove Convertible Arbitrage Fund L.P. (86) | | | 1,250,000 | | | | * | | | | 48,076 | | | | 48,076 | | | | — |

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| | Original Principal | | | | | | | | | | Number of Shares of | | | |
| | Amount of Notes | | Percentage of Notes | | Number of Shares of | | Common Stock | | Number of Shares of
| | Beneficially Owned | | Outstanding Before | | Common Stock Held | | Offered for Sale(1) | | Common Stock Held
Name | | That May be Sold | | Offering* | | Before Offering(1) | | (2) | | After Offering(3)
Zazove Income Fund, L.P. (87) | | | 1,200,000 | | | | * | | | | 46,153 | | | | 46,153 | | | | — |
Zurich Institutional Benchmarkers Master Fund, Ltd. (88) | | | 2,000,000 | | | | 1.33 | | | | 76,923 | | | | 76,923 | | | | — |
Zurich Institutional Benchmark Master Fund c/o Argent (89) | | | 100,000 | | | | * | | | | 3,846 | | | | 3,846 | | | | — |
Zurich Institutional Benchmarks Master Fund Ltd. (90) | | | 1,293,000 | | | | * | | | | 49,730 | | | | 49,730 | | | | — |
Any other holder of notes or future transferee from any such holder (91) | | | 42,493,000 | | | | 28.33 | % | | | 1,634,344 | | | | 1,634,344 | | | | — |
Total | | | 150,000,000 | | | | 100.00 | % | | | 5,788,357 | | | | 5,769,225 | | | | 19,132 |

          *          Less than 1%
| 1) | | The number of conversion shares shown in the table above assumes conversion of the full amount of notes held by such holder at the initial conversion rate of 38.4615 shares per $1,000 principal amount at maturity of notes. This conversion rate is subject to certain adjustments. Accordingly, the number of shares of common stock issuable upon conversion of the notes may increase or decrease from time to time. Under the terms of the indenture, fractional shares will not be issued upon conversion of the notes. Cash will be paid instead of fractional shares, if any. As of October 31, 2003, we had 26,707,579 shares of common stock outstanding.
| 2) | | The shares of common stock that may be sold upon conversion of the notes by any selling securityholder will not represent 1% or more of our outstanding common stock, except Advent Convertible Master (Cayman) L.P.(1.1%).
| 3) | | Assumes all of the notes and shares of common stock issuable upon their conversion are sold in the offering.
| 4) | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 5) | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 6) | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 7) | | The selling security holder is a fund of Mackay Shields, LLC, an indirect wholly-owned subsidiary of New York Life Insurance Company.
| 8) | | DKR Capital Partners L.P. (“DKR LP”) is a registered investment advisor with the Securities and Exchange Commission and as such, serves as the managing general partner of the investment manager to AIG DKR SoundShore Oasis Holding Fund Ltd. (the “Fund”). DKR LP has retained certain individuals to act as the portfolio manager to the Fund managed by DKR LP. As such, DKR LP and certain portfolio managers have shared dispositive and voting power over the securities.
| 9) | | DKR Capital Partners L.P. (“DKR LP”) is a registered investment advisor with the Securities and Exchange Commission and as such, serves as the managing general partner of the investment manager to AIG DKR SoundShore Strategic Holding Fund Ltd. (the “Fund”). DKR LP has retained certain

7

 
| | | individuals to act as the portfolio manager to the Fund managed by DKR LP. As such, DKR LP and certain portfolio managers have shared dispositive and voting power over the securities.
| 10. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 11. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 12. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 13. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 14. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 15. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 16. | | Nathaniel Brown, as principal of this entity, exercises sole voting or dispositive power with respect to these securities.
| 17. | | Nathaniel Brown, as principal of this entity, exercises sole voting or dispositive power with respect to these securities.
| 18. | | Nathaniel Brown, as principal of this entity, exercises sole voting or dispositive power with respect to these securities.
| 19. | | Nathaniel Brown, as principal of this entity, exercises sole voting or dispositive power with respect to these securities.
| 20. | | Nathaniel Brown, as principal of this entity, exercises sole voting or dispositive power with respect to these securities.
| 21. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 22. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 23. | | Includes $20,000 aggregate principal amount held by Convertible Securities Fund and $130,000 aggregate principal amount held by Nations Convertible Securities Fund, each an affiliate of Banc of America Capital Management, LLC. Eddie L. Cassens, CFA, Managing Director and Yangfang C. Yan, Portfolio Manager, of Bank of America Capital Management, LLC share voting and dispositive power with respect to these securities.
| 24. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 25. | | Mike Cohen – Vice President of EQD Convertibles Trading at BNP Paribas, has voting and dispositive power over these securities.
| 26. | | SSI Investment Management, Inc., exercises sole voting or dispositive power with respect to these securities. Major shareholders of SSI Investment Management are John Gottfurcht, George Douglas and Amy Jo Gottfurcht.
| 27. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 28. | | Nick Calamos, as Senior Executive Vice President, Chief Investment Officer and Director of Investments for Calamos Asset Management, Inc., has sole voting or dispositive power with respect to these securities.

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| 29. | | Nick Calamos, as Senior Executive Vice President, Chief Investment Officer and Director of Investments for Calamos Asset Management, Inc., has sole voting or dispositive power with respect to these securities.
| 30. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 31. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 32. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 33. | | CNH Partners, LLC is the Investment Advisor of the Selling Security Holder and has sole voting and dispositive power over the Registrable Securities. Investment Principals for the Advisor are Rober Krail, Mark Mitchell, and Todd Pulvino. They have voting and dispositive power over these securities.
| 34. | | Eddie L. Cassens, CFA, Managing Director and Yangang C. Yan, Portfolio Manager have voting and dispositive power over these securities.
| 35. | | Jay Lurie, a principal of Harbor Capital Management LLC, has voting and dispositive power over these securities.
| 36. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 37. | | Includes $1,609,000 aggregate principal amount held by Deutsche Bank Securities, Inc. (“Deutsche Bank”) and $2,700,000 aggregate principal amoung held by DBAG — London, an affiliate of Deutsche Bank. Deutsche Bank is a reporting company under the Securities Exchange Act of 1934 and exercises sole voting and dispositive power with respect to these securities.
| 38. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 39. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 40. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 41. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 42. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 43. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 44. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 45. | | Gene T. Pretti, a principal of this entity, has voting and dispositive power over the securities.
| 46. | | SSI Investment Management, Inc. exercises sole voting or dispositive power with respect to these securities. Major shareholders of SSI Investment Management are John Gottfurcht, George Douglas and Amy Jo Gottfurcht.
| 47. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 48. | | SSI Investment Management, Inc. exercises sole voting or dispositive power with respect to these securities. Major shareholders of SSI Investment Management are John Gottfurcht, George Douglas and Amy Jo Gottfurcht.

9

 
| 49. | | KBC Financial Produccts USA Inc. exercises voting and investing control over any shares of common stock issuable upon conversion of the securities owned by this selling holder. Luke Edwards, Managing Director, exercises voting and investment control on behalf of KBC Financial Products USA Inc.
| 50. | | KBC Financial Products Cayman Islands Ltd. exercises voting and investment control over any securities of common stock issuable upon conversion of the securities owned by the selling holder. Mr. Ivan Rehder, Managing Director, exercises voting and investment control on behalf of KBC Financial Products (Cayman Islands) Ltd.
| 51. | | Van Nguyen, John Illyzzi, Andrew Mitchell, Nathaniel Newlin, Timothy Walton, and Venkatesh Reddy are the controlling persons of Laurel Ridge Capital, L.P. and share voting and dispositive power over these securities.
| 52. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 53. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 54. | | Nathaniel Brown, as principal of this entity, exercises sole voting or dispositive power with respect to these securities.
| 55. | | The selling security holder is a fund of Mackay Shields, LLC, an indirect wholly-owned subsidiary of New York Life Insurance Company.
| 56. | | The selling security holder is a fund of Mackay Shields, LLC, an indirect wholly-owned subsidiary of New York Life Insurance Company.
| 57. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 58. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 59. | | Eddie L. Cassens, CFA, Managing Director and Yangang C. Yan, Portfolio Manager share voting and dispositive power over these securities.
| 60. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 61. | | The selling security holder is a fund of Mackay Shields, LLC, an indirect wholly-owned subsidiary of New York Life Insurance Company.
| 62. | | The selling security holder is a fund of Mackay Shields, LLC, an indirect wholly-owned subsidiary of New York Life Insurance Company.
| 63. | | The selling security holder is a fund of Mackay Shields, LLC, an indirect wholly-owned subsidiary of New York Life Insurance Company.
| 64. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 65. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 66. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 67. | | The Board of Directors of Polygon Global Opportunities Master Fund: Alex Jackson, Byron Kruef, Brandon Jones, Erik Caspersen, Greville Ward, Reade Griffith, have voting and dispositive power over these securities.
| 68. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.

10

 
| 69. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 70. | | Forest Investment Mngt. LLC is 100% owned by Forest Partners II LP. Michael A. Boyd Inc., is the General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 71. | | Gene T. Pretti, a principal of this entity, has voting and dispositive power over the securities.
| 72. | | SSI Investment Management, Inc. exercises sole voting or dispositive power with respect to these securities. Major shareholders of SSI Investment Management are John Gottfurcht, George Douglas and Amy Jo Gottfurcht.
| 73. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 74. | | SSI Investment Management, Inc. has voting and dispositive power over these shares. Major shareholders of SSI Investment Management are John Gottfurcht, George Douglas and Amy Jo Gottfurcht.
| 75. | | SSI Investment Management, Inc. has voting and dispositive power over these shares. Major shareholders of SSI Investment Management are John Gottfurcht, George Douglas and Amy Jo Gottfurcht.
| 76. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 77. | | Sturgeon Limited shares dispositive power with CooperNeff Advisors, Inc. CooperNeff Advisors, Inc. exercises sole voting power with respect to these securities.
| 78. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 79. | | Thomas Lyon, Managing Director of TCW Group, Inc., has voting and dispositive power over these securities.
| 80. | | Advent Capital Management, LLC is the investment advisor of this entity and Paul Latronica, a vice president of the investment advisor, has the power to direct the voting and disposition of the securities held by this entity.
| 81. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 82. | | SSI Investment Management, Inc. exercises sole voting or dispositive power with respect to these securities. Major shareholders of SSI Investment Management are John Gottfurcht, George Douglas and Amy Jo Gottfurcht.
| 83. | | Rober Bellick, Chris Gust and Eric Henschel share voting and dispositive power with respect to these securities.
| 84. | | The selling securityholder is controlled by Forest Partners II LP, of which Michael A. Boyd is General Partner. Michael A. Boyd is the principal of Michael A. Boyd Inc. and exercises sole voting and dispositive power with respect to these securities.
| 85. | | Nathaniel Brown, as principal of this entity, exercises sole voting or dispositive power with respect to these securities.
| 86. | | Gene T. Pretti, a principal of this entity, has voting and dispositive power over the securities.
| 87. | | Gene T. Pretti, a principal of this entity, has voting and dispositive power over the securities.
| 88. | | Gene T. Pretti, a principal of this entity, has voting and dispositive power over the securities.
| 89. | | Nathaniel Brown, as principal of this entity, exercises sole voting or dispositive power with respect to these securities.
| 90. | | SSI Investment Management, Inc. exercises sole voting or dispositive power with respect to these securities. Major shareholders of SSI Investment Management are John Gottfurcht, George Douglas and Amy Jo Gottfurcht. Zazove Associates LLC exercises sole voting or dispositive power with respect to 1,000,000 of these securities.
| 91. | | Information concerning other selling securityholders will be set forth in prospectus supplements from time to time, if required.

11

 

FORWARD-LOOKING INFORMATION

     The following information may contain forward-looking statements that are based on the best information currently available to management. These forward-looking statements are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “forecast,” “may,” “will,” “could,” “should,” “expect,” “plan,” “believe,” “potential” or other similar words indicating future events or contingencies. Some of the things that could cause our actual results to differ from our expectations are: economic conditions; the continued impact of terrorist attacks, global instability and potential U.S. military involvement; our significant indebtedness; downgrades of our credit ratings; the competitive environment and other trends in our industry; changes in laws and regulations; changes in our operating costs including fuel; changes in our business plans; interest rates and the availability of financing; liability and other claims asserted against us; labor disputes; our ability to attract and retain qualified personnel; and inflation. For a discussion of these and other risk factors, see our prospectus dated October 7, 2003 with respect to the notes and the common stock issuable upon conversion thereof, particularly “Risk Factors” beginning on page 4 thereof. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results.

THIRD QUARTER RESULTS

     On October 21, 2003, we reported third quarter net income of $40.7 million, or $1.52 per share, compared to net income of $12.5 million, or $0.47 per share, in the third quarter of 2002.

     For the nine months ending September 30, 2003, net income was $29.6 million, or $1.11 per share, compared to a net loss of $75.5 million, or $2.84 per share, during the same period in 2002. Excluding government compensation received in 2003 and a write-off of goodwill in 2002, the company’s net loss for the first nine months of 2003 was $14.7 million ($0.55 per share) versus a loss of $24.4 million ($0.92 per share) for 2002. The 2003 government assistance amounted to $71.4 million ($44.3 million after tax) under the Emergency Wartime Supplemental Appropriations Act. The 2002 net loss included $51.4 million, or $1.93 per share, related to the write-off of goodwill in connection with the adoption of Statement of Financial Accounting Standards No. 142.

     Operationally, Alaska Airlines’ passenger traffic in the third quarter increased 12.3 percent on a capacity increase of 9.3 percent. Alaska’s load factor increased 2.0 percentage points to 72.5 percent compared to the same period in 2002. Alaska’s operating revenue per available seat mile (ASM) increased 4.5 percent, while its operating cost per ASM excluding fuel decreased 3.9 percent. Alaska’s pretax income was $50.1 million, compared to $13.1 million in 2002.

     Horizon Air’s passenger traffic in the third quarter increased 9.9 percent on a 6.7 percent capacity increase. Horizon’s load factor increased by 1.9 percentage points to 66.5 percent compared to the same period in 2002. Horizon’s operating revenue per ASM increased 6.7 percent, while its operating cost per ASM excluding fuel decreased 5.1 percent. Horizon’s pretax income was $19.5 million, compared to $5.9 million in 2002.

     We had cash and short-term investments at September 30, 2003 of approximately $749 million compared to $636 million at December 31, 2002. The increased balance reflects the receipt of $71.4 million of government compensation and $123.2 million net proceeds received in connection with the completion of a private placement of floating rate convertible bonds on March 21, 2003. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 78 percent at September 30, 2003 compared to 77 percent as of December 31, 2002.

     A summary of financial and statistical data for Alaska Airlines and Horizon as well as a reconciliation of the reported non-GAAP financial measures can be found on pages 15 to 17 below.

     We are the parent company of Alaska Airlines, Inc. and Horizon Air Industries, Inc.

12

 

ALASKA AIR GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Millions Except Per Share Amounts)
| | | Three Months | | Nine Months
| | | Ended September 30 | | Ended September 30
| | | 2002 | | 2003 | | 2002 | | 2003
Operating Revenues: | | | | | | | | | | | | | | | |
Passenger | | $ | 570.7 | | | $ | 645.8 | | | $ | 1,552.0 | | | $ | 1,678.2 |
Freight and mail | | | 21.1 | | | | 22.6 | | | | 59.4 | | | | 63.6 |
Other — net | | | 28.8 | | | | 33.8 | | | | 85.0 | | | | 89.7 |
Total Operating Revenues | | | 620.6 | | | | 702.2 | | | | 1,696.4 | | | | 1,831.5 |
Operating Expenses: | | | | | | | | | | | | | | | |
Wages and benefits | | | 224.1 | | | | 237.9 | | | | 638.8 | | | | 697.5 |
Contracted services | | | 22.2 | | | | 24.4 | | | | 69.3 | | | | 74.5 |
Aircraft fuel | | | 82.7 | | | | 94.7 | | | | 222.6 | | | | 265.0 |
Aircraft maintenance | | | 35.8 | | | | 42.4 | | | | 121.3 | | | | 140.2 |
Aircraft rent | | | 48.3 | | | | 49.2 | | | | 141.6 | | | | 146.1 |
Food and beverage service | | | 18.6 | | | | 17.6 | | | | 49.9 | | | | 46.6 |
Commissions | | | 7.2 | | | | 4.6 | | | | 31.1 | | | | 11.4 |
Other selling expenses | | | 32.5 | | | | 31.5 | | | | 96.2 | | | | 87.7 |
Depreciation and amortization | | | 34.4 | | | | 32.7 | | | | 100.7 | | | | 98.2 |
Loss (gain) on sale of assets | | | (0.3 | ) | | | 0.1 | | | | (0.8 | ) | | | 0.2 |
Landing fees and other rentals | | | 38.1 | | | | 43.3 | | | | 103.9 | | | | 120.6 |
Other | | | 51.5 | | | | 45.0 | | | | 150.9 | | | | 139.3 |
Total Operating Expenses | | | 595.1 | | | | 623.4 | | | | 1,725.5 | | | | 1,827.3 |
Operating (Loss) Income | | | 25.5 | | | | 78.8 | | | | (29.1 | ) | | | 4.2 |
Nonoperating Income (Expense): | | | | | | | | | | | | | | | |
Interest income | | | 6.0 | | | | 5.5 | | | | 16.1 | | | | 11.5 |
Interest expense | | | (11.2 | ) | | | (13.3 | ) | | | (34.7 | ) | | | (38.6 | )
Interest capitalized | | | 0.6 | | | | 0.4 | | | | 1.4 | | | | 1.9 |
U.S. government compensation | | | 0.4 | | | | — | | | | 0.5 | | | | 71.4 |
Other — net | | | (2.0 | ) | | | (3.2 | ) | | | 8.9 | | | | 2.7 |
| | | (6.2 | ) | | | (10.6 | ) | | | (7.8 | ) | | | 48.9 |
Income (loss) before income tax and accounting change | | | 19.3 | | | | 68.2 | | | | (36.9 | ) | | | 53.1 |
Income tax expense (benefit) | | | 6.8 | | | | 27.5 | | | | (12.8 | ) | | | 23.5 |
Income (loss) before accounting change | | | 12.5 | | | | 40.7 | | | | (24.1 | ) | | | 29.6 |
Cumulative effect of accounting change | | | — | | | | — | | | | (51.4 | ) | | | — |
Net Income (Loss) | | $ | 12.5 | | | $ | 40.7 | | | $ | (75.5 | ) | | $ | 29.6 |
Basic Earnings (Loss) Per Share: | | | | | | | | | | | | | | | |
Earnings (loss) before accounting change | | $ | 0.47 | | | $ | 1.53 | | | $ | (0.91 | ) | | $ | 1.11 |
Cumulative effect of accounting change | | | — | | | | — | | | | (1.93 | ) | | | — |
Earnings (Loss) Per Share | | $ | 0.47 | | | $ | 1.53 | | | $ | (2.84 | ) | | $ | 1.11 |
Diluted Earnings (Loss) Per Share: | | | | | | | | | | | | | | | |
Earnings (loss) before accounting change | | $ | 0.47 | | | $ | 1.52 | | | $ | (0.91 | ) | | $ | 1.11 |
Cumulative effect of accounting change | | | — | | | | — | | | | (1.93 | ) | | | — |
Earnings (Loss) Per Share | | $ | 0.47 | | | $ | 1.52 | | | $ | (2.84 | ) | | $ | 1.11 |
Shares used for computation: | | | | | | | | | | | | | | | |
| Basic | | | 26.549 | | | | 26.660 | | | | 26.543 | | | | 26.621 |
| Diluted | | | 26.562 | | | | 26.796 | | | | 26.543 | | | | 26.680 |
13

 

Alaska Air Group, Inc.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
| | December 31 | | September 30
(In Millions) | | 2002 | | 2003
Cash and marketable securities | | $ | 636 | | | $ | 749 |
Total current assets | | | 976 | | | | 1,123 |
Property and equipment—net | | | 1,780 | | | | 1,951 |
Other assets | | | 125 | | | | 165 |
Total assets | | $ | 2,881 | | | $ | 3,239 |
Current liabilities | | | 778 | | | | 861 |
Long-term debt and capital lease obligations | | | 857 | | | | 1,041 |
Other liabilities and credits | | | 590 | | | | 654 |
Shareholders’ equity | | | 656 | | | | 683 |
Total liabilities and shareholders’ equity | | $ | 2,881 | | | $ | 3,239 |
14

 

Alaska Airlines Financial and Statistical Data
| | Three Months Ended September 30 | | Nine Months Ended September 30
| | | | | | | | | | % | | | | | | | | | | %
Financial Data (in millions): | | 2002 | | 2003 | | Change | | 2002 | | 2003 | | Change
Operating Revenues: | | | | | | | | | | | | | | | | | | | | | | | |
Passenger | | $ | 468.0 | | | $ | 532.5 | | | | 13.8 | % | | $ | 1,275.5 | | | $ | 1,380.1 | | | | 8.2 | %
Freight and mail | | | 19.7 | | | | 21.4 | | | | 8.6 | % | | | 55.6 | | | | 59.8 | | | | 7.6 | %
Other — net | | | 24.7 | | | | 31.4 | | | | 27.1 | % | | | 72.2 | | | | 83.0 | | | | 15.0 | %
Total Operating Revenues | | | 512.4 | | | | 585.3 | | | | 14.2 | % | | | 1,403.3 | | | | 1,522.9 | | | | 8.5 | %
Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | |
Wages and benefits | | | 184.9 | | | | 198.7 | | | | 7.5 | % | | | 524.1 | | | | 578.7 | | | | 10.4 | %
Contracted services | | | 18.9 | | | | 20.5 | | | | 8.5 | % | | | 59.8 | | | | 60.9 | | | | 1.8 | %
Aircraft fuel | | | 70.7 | | | | 81.6 | | | | 15.4 | % | | | 190.1 | | | | 227.6 | | | | 19.7 | %
Aircraft maintenance | | | 31.6 | | | | 35.2 | | | | 11.4 | % | | | 103.3 | | | | 117.7 | | | | 13.9 | %
Aircraft rent | | | 32.1 | | | | 31.1 | | | | -3.1 | % | | | 95.7 | | | | 92.8 | | | | -3.0 | %
Food and beverage service | | | 17.8 | | | | 17.0 | | | | -4.5 | % | | | 47.9 | | | | 44.8 | | | | -6.5 | %
Commissions | | | 13.2 | | | | 17.6 | | | | 33.3 | % | | | 43.9 | | | | 38.0 | | | -13.4 | %
Other selling expenses | | | 26.1 | | | | 25.8 | | | | -1.1 | % | | | 78.8 | | | | 71.0 | | | | -9.9 | %
Depreciation and amortization | | | 29.2 | | | | 29.7 | | | | 1.7 | % | | | 85.7 | | | | 87.8 | | | | 2.5 | %
Loss on sale of assets | | | 0.5 | | | | 0.8 | | | NM | | | 0.7 | | | | 1.3 | | | NM
Landing fees and other rentals | | | 30.1 | | | | 33.6 | | | | 11.6 | % | | | 82.2 | | | | 93.5 | | | | 13.7 | %
Other | | | 38.5 | | | | 34.5 | | | -10.4 | % | | | 111.3 | | | | 102.9 | | | | -7.5 | %
Total Operating Expenses | | | 493.6 | | | | 526.1 | | | | 6.6 | % | | | 1,423.5 | | | | 1,517.0 | | | | 6.6 | %
Operating Income (Loss) | | | 18.8 | | | | 59.2 | | | NM | | | (20.2 | ) | | | 5.9 | | | NM
Interest income | | | 6.4 | | | | 4.6 | | | | | | | | 17.5 | | | | 10.3 | | | | |
Interest expense | | | (11.3 | ) | | | (11.2 | ) | | | | | | | (35.0 | ) | | | (33.9 | ) | | | |
Interest capitalized | | | 0.5 | | | | 0.2 | | | | | | | | 1.0 | | | | 1.3 | | | | |
U.S. government compensation | | | 0.2 | | | | — | | | | | | | | 0.3 | | | | 52.8 | | | | |
Other — net | | | (1.5 | ) | | | (2.7 | ) | | | | | | | 7.7 | | | | 2.7 | | | | |
| | | (5.7 | ) | | | (9.1 | ) | | | | | | | (8.5 | ) | | | 33.2 | | | | |
Income (Loss) Before Income Tax and Accounting Change | | $ | 13.1 | | | $ | 50.1 | | | NM | | $ | (28.7 | ) | | $ | 39.1 | | | NM
Operating Statistics: | | | | | | | | | | | | | | | | | | | | | | | |
Revenue passengers (000) | | | 3,978 | | | | 4,280 | | | | 7.6 | % | | | 10,787 | | | | 11,335 | | | | 5.1 | %
RPMs (000,000) | | | 3,673 | | | | 4,126 | | | | 12.3 | % | | | 10,022 | | | | 10,946 | | | | 9.2 | %
ASMs (000,000) | | | 5,207 | | | | 5,693 | | | | 9.3 | % | | | 14,602 | | | | 15,611 | | | | 6.9 | %
Passenger load factor | | | 70.5 | % | | | 72.5 | % | | 2.0 | pts | | | 68.6 | % | | | 70.1 | % | | 1.5 | pts
Breakeven load factor | | | 69.4 | % | | | 65.9 | % | | -3.5 | pts | | | 71.4 | % | | | 71.6 | % | | 0.2 | pts
Yield per passenger mile | | | 12.74 | ¢ | | | 12.91 | ¢ | | | 1.3 | % | | | 12.73 | ¢ | | | 12.61 | ¢ | | | -0.9 | %
Operating revenue per ASM | | | 9.84 | ¢ | | | 10.28 | ¢ | | | 4.5 | % | | | 9.61 | ¢ | | | 9.76 | ¢ | | | 1.5 | %
Operating expenses per ASM (a) | | | 9.48 | ¢ | | | 9.24 | ¢ | | | -2.5 | % | | | 9.75 | ¢ | | | 9.72 | ¢ | | | -0.3 | %
Operating expenses per ASM excluding fuel (a) | | | 8.12 | ¢ | | | 7.81 | ¢ | | | -3.9 | % | | | 8.45 | ¢ | | | 8.26 | ¢ | | | -2.2 | %
Fuel cost per gallon | | | 81.6 | ¢ | | | 88.7 | ¢ | | | 8.7 | % | | | 77.9 | ¢ | | | 89.6 | ¢ | | | 15.0 | %
Fuel gallons (000,000) | | | 86.6 | | | | 92.0 | | | | 6.2 | % | | | 243.9 | | | | 253.9 | | | | 4.1 | %
Average number of employees | | | 10,465 | | | | 10,114 | | | | -3.4 | % | | | 10,167 | | | | 10,079 | | | | -0.9 | %
Aircraft utilization (blk hrs/day) | | | 11.2 | | | | 11.1 | | | | -0.9 | % | | | 10.7 | | | | 10.6 | | | | -0.9 | %
Operating fleet at period-end | | | 102 | | | | 109 | | | | 6.9 | % | | | 102 | | | | 109 | | | | 6.9 | %
NM = Not Meaningful

(a)  See Note 1 on Page 17

Note:
Certain reclassifications have been made to the September 30, 2002 statements of operations to conform to the September 30, 2003 presentation.

15

 

Horizon Air Financial and Statistical Data
| | Three Months Ended September 30 | | Nine Months Ended September 30
| | | | | | | | | | % | | | | | | | | | | %
Financial Data (in millions): | | 2002 | | 2003 | | Change | | 2002 | | 2003 | | Change
Operating Revenues: | | | | | | | | | | | | | | | | | | | | | | | |
Passenger | | $ | 110.0 | | | $ | 127.2 | | | | 15.6 | % | | $ | 294.9 | | | $ | 326.8 | | | | 10.8 | %
Freight and mail | | | 1.4 | | | | 1.2 | | | | -14.3 | % | | | 3.8 | | | | 3.8 | | | | 0.0 | %
Other — net | | | 5.2 | | | | 4.3 | | | | -17.3 | % | | | 16.4 | | | | 11.7 | | | -28.7 | %
Total Operating Revenues | | | 116.6 | | | | 132.7 | | | | 13.8 | % | | | 315.1 | | | | 342.3 | | | | 8.6 | %
Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | |
Wages and benefits | | | 38.7 | | | | 39.2 | | | | 1.3 | % | | | 113.2 | | | | 118.8 | | | | 4.9 | %
Contracted services | | | 5.3 | | | | 5.7 | | | | 7.5 | % | | | 15.6 | | | | 18.4 | | | | 17.9 | %
Aircraft fuel | | | 12.0 | | | | 13.1 | | | | 9.2 | % | | | 32.5 | | | | 37.4 | | | | 15.1 | %
Aircraft maintenance | | | 4.2 | | | | 7.2 | | | | 71.4 | % | | | 18.0 | | | | 22.5 | | | | 25.0 | %
Aircraft rent | | | 16.2 | | | | 18.1 | | | | 11.7 | % | | | 45.9 | | | | 53.3 | | | | 16.1 | %
Food and beverage service | | | 0.8 | | | | 0.6 | | | | -25.0 | % | | | 2.0 | | | | 1.8 | | | -10.0 | %
Commissions | | | 1.3 | | | | 0.9 | | | | -30.8 | % | | | 5.7 | | | | 2.1 | | | -63.2 | %
Other selling expenses | | | 6.4 | | | | 5.7 | | | | -10.9 | % | | | 17.4 | | | | 16.7 | | | | -4.0 | %
Depreciation and amortization | | | 4.9 | | | | 2.7 | | | | -44.9 | % | | | 13.9 | | | | 9.5 | | | -31.7 | %
Gain on sale of assets | | | (0.7 | ) | | | (0.7 | ) | | NM | | | (1.4 | ) | | | (1.1 | ) | | NM
Landing fees and other rentals | | | 8.6 | | | | 10.3 | | | | 19.8 | % | | | 22.8 | | | | 28.2 | | | | 23.7 | %
Other | | | 12.5 | | | | 9.7 | | | | -22.4 | % | | | 37.5 | | | | 32.6 | | | | -13.1 | %
Total Operating Expenses | | | 110.2 | | | | 112.5 | | | | 2.1 | % | | | 323.1 | | | | 340.2 | | | | 5.3 | %
Operating Income (Loss) | | | 6.4 | | | | 20.2 | | | | 215.6 | % | | | (8.0 | ) | | | 2.1 | | | -126.3 | %
Interest income | | | 0.2 | | | | 0.2 | | | | | | | | 0.6 | | | | 0.5 | | | | |
Interest expense | | | (0.6 | ) | | | (0.6 | ) | | | | | | | (1.6 | ) | | | (1.9 | ) | | | |
Interest capitalized | | | 0.1 | | | | 0.2 | | | | | | | | 0.4 | | | | 0.6 | | | | |
Government compensation | | | 0.2 | | | | — | | | | | | | | 0.2 | | | | 18.6 | | | | |
Other — net | | | (0.4 | ) | | | (0.5 | ) | | | | | | | 1.3 | | | | — | | | | |
| | | (0.5 | ) | | | (0.7 | ) | | | | | | | 0.9 | | | | 17.8 | | | | |
Income (Loss) Before Income Tax and Accounting Change | | $ | 5.9 | | | $ | 19.5 | | | NM | | $ | (7.1 | ) | | $ | 19.9 | | | NM
Operating Statistics: | | | | | | | | | | | | | | | | | | | | | | | |
Revenue passengers (000) | | | 1,334 | | | | 1,376 | | | | 3.1 | % | | | 3,621 | | | | 3,671 | | | | 1.4 | %
RPMs (000,000) | | | 424 | | | | 466 | | | | 9.9 | % | | | 1,128 | | | | 1,224 | | | | 8.5 | %
ASMs (000,000) | | | 657 | | | | 701 | | | | 6.7 | % | | | 1,795 | | | | 1,950 | | | | 8.6 | %
Passenger load factor | | | 64.6 | % | | | 66.5 | % | | 1.9 | pts | | | 62.8 | % | | | 62.8 | % | | 0.0 | pts
Breakeven load factor | | | 61.6 | % | | | 56.2 | % | | -5.4 | pts | | | 65.0 | % | | | 62.8 | % | | -2.2 | pts
Yield per passenger mile | | | 25.92 | ¢ | | | 27.29 | ¢ | | | 5.3 | % | | | 26.15 | ¢ | | | 26.70 | ¢ | | | 2.1 | %
Operating revenue per ASM | | | 17.74 | ¢ | | | 18.93 | ¢ | | | 6.7 | % | | | 17.55 | ¢ | | | 17.56 | ¢ | | | 0.1 | %
Operating expenses per ASM | | | 16.76 | ¢ | | | 16.05 | ¢ | | | -4.3 | % | | | 17.99 | ¢ | | | 17.45 | ¢ | | | -3.0 | %
Operating expenses per ASM excluding fuel (a) | | | 14.94 | ¢ | | | 14.18 | ¢ | | | -5.1 | % | | | 16.18 | ¢ | | | 15.53 | ¢ | | | -4.0 | %
Fuel cost per gallon | | | 81.9 | ¢ | | | 90.3 | ¢ | | | 10.3 | % | | | 80.1 | ¢ | | | 91.9 | ¢ | | | 14.7 | %
Fuel gallons (000,000) | | | 14.7 | | | | 14.5 | | | | -1.4 | % | | | 40.6 | | | | 40.7 | | | | 0.2 | %
Average number of employees | | | 3,518 | | | | 3,368 | | | | -4.3 | % | | | 3,463 | | | | 3,375 | | | | -2.5 | %
Aircraft utilization (blk hrs/day) | | | 7.7 | | | | 8.2 | | | | 6.5 | % | | | 7.4 | | | | 7.9 | | | | 6.8 | %
Operating fleet at period-end | | | 63 | | | | 61 | | | | -3.2 | % | | | 63 | | | | 61 | | | | -3.2 | %
NM = Not Meaningful

(a)  See Note 1 on Page 17

Note:
Certain reclassifications have been made to the September 30, 2002 statements of operations to conform to the September 30, 2003 presentation.

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Note 1:

Pursuant to new guidelines issued by the Securities and Exchange Commission, we are providing the following reconciliation of non-GAAP performance indicators to their comparable financial measures reported on a GAAP basis. Our disclosure of operating costs and cost per available seat mile, excluding fuel, provides us the ability to measure and monitor our performance both with and without the cost of aircraft fuel as both the cost and availability of fuel are subject to economic and political factors beyond our control. We also believe that disclosing net income (loss) and diluted earnings (loss) per share excluding non-recurring items is helpful to investors in evaluating our operational performance because we believe the reimbursements received from the government and the write-off of goodwill are non-recurring events. The following table reconciles operating expenses excluding fuel and operating expense per ASM excluding fuel for Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
Alaska Airlines, Inc.: | | | | | | | | | | | | | | | | |
($ in millions) | | Three Months Ended September 30 | | Nine Months Ended September 30 |
| | 2002 | | 2003 | | 2002 | | 2003 |
Operating expenses | | $ | 493.6 | | | $ | 526.1 | | | $ | 1,423.5 | | | $ | 1,517.0 | |
ASMs (000,000) | | | 5,207 | | | | 5,693 | | | | 14,602 | | | | 15,611 | |
Operating expenses per ASM | | | 9.48 | ¢ | | | 9.24 | ¢ | | | 9.75 | ¢ | | | 9.72 | ¢ |
Operating expenses | | $ | 493.6 | | | $ | 526.1 | | | $ | 1,423.5 | | | $ | 1,517.0 | |
Less: aircraft fuel | | | 70.7 | | | | 81.6 | | | | 190.1 | | | | 227.6 | |
Operating expense excluding fuel | | $ | 422.9 | | | $ | 444.5 | | | $ | 1,233.4 | | | $ | 1,289.4 | |
ASMs (000,000) | | | 5,207 | | | | 5,693 | | | | 14,602 | | | | 15,611 | |
Operating expense per ASM excluding fuel | | | 8.12 | ¢ | | | 7.81 | ¢ | | | 8.45 | ¢ | | | 8.26 | ¢ |
Horizon Air Industries, Inc.: | | | | | | | | | | | | | | | | |
($ in millions) | | | | |
| | 2002 | | 2003 | | 2002 | | 2003 |
Operating expenses | | $ | 110.2 | | | $ | 112.5 | | | $ | 323.1 | | | $ | 340.2 | |
ASMs (000,000) | | | 657 | | | | 701 | | | | 1,795 | | | | 1,950 | |
Operating expenses per ASM | | | 16.76 | ¢ | | | 16.05 | ¢ | | | 17.99 | ¢ | | | 17.45 | ¢ |
Operating expenses | | $ | 110.2 | | | $ | 112.5 | | | $ | 323.1 | | | $ | 340.2 | |
Less: aircraft fuel | | | 12.0 | | | | 13.1 | | | | 32.5 | | | | 37.4 | |
Operating expense excluding fuel | | $ | 98.2 | | | $ | 99.4 | | | $ | 290.6 | | | $ | 302.8 | |
ASMs (000,000) | | | 657 | | | | 701 | | | | 1,795 | | | | 1,950 | |
Operating expense per ASM excluding fuel | | | 14.94 | ¢ | | | 14.18 | ¢ | | | 16.18 | ¢ | | | 15.53 | ¢ |
The following table summarizes Alaska Air Group, Inc.’s net earnings (loss) and diluted income (loss) per share during 2002 and 2003 excluding certain non-recurring items and as reported in accordance with GAAP (dollars in millions):
| | Three Months Ended September 30,
| | 2002 | | 2003
| | Dollars | | Earnings Per Share | | Dollars | | Earnings Per Share
Net income and diluted EPS excluding Government compensation | | $ | 12.2 | | | $ | 0.46 | | | $ | 40.7 | | | $ | 1.52 |
Government compensation, net of tax | | | 0.3 | | | | 0.01 | | | | — | | | | — |
Reported GAAP amounts | | $ | 12.5 | | | $ | 0.47 | | | $ | 40.7 | | | $ | 1.52 |
| | Nine Months Ended September 30,
| | 2002 | | 2003
| | Dollars | | Loss Per Share | | Dollars | | Earnings Per Share
Net income (loss) and diluted earnings (loss) per share excluding non-recurring items | | | ($24.4 | ) | | | ($0.92 | ) | | | ($14.7 | ) | | | ($0.55 | )
Change in accounting principle relating to goodwill | | | (51.4 | ) | | | ($1.93 | ) | | | — | | | | — |
Government compensation, net of tax | | | 0.3 | | | | 0.01 | | | | 44.3 | | | | 1.66 |
Reported GAAP amounts | | | ($75.5 | ) | | | ($2.84 | ) | | $ | 29.6 | | | $ | 1.11 |
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