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ALASKA AIR GROUP REPORTS SECOND QUARTER RESULTS

     SEATTLE — Alaska Air Group, Inc. (NYSE:ALK) today reported a second quarter net loss of $1.7 million, or $0.06 per diluted share, compared to net income of $45.2 million, or $1.70 per diluted share, in the second quarter of 2003.

     Second quarter results include impairment charges of $37.2 million ($24.7 million, net of tax, or $0.92 per share), substantially all of which was associated with a decision to accelerate the retirement of the company’s Boeing 737-200C fleet. Second quarter results also include $22.3 million ($14.8 million, net of tax, or $0.55 per share) in mark-to-market hedging gains reflecting an increase in the fair value of the company’s current hedge portfolio since March 31, 2004, which resulted from the loss of “hedge accounting” during the quarter. Without these items in 2004 and excluding the government compensation received in 2003, net income would have been $8.2 million, or $0.31 per share during 2004, compared to net income of $0.9 million, or $0.04 per share, in 2003.

     “These results demonstrate real progress with our plan to reduce costs,” said Bill Ayer, chairman and chief executive officer. “But change in our industry has been rapid, radical and permanent, so we need to pick up the pace. As we proceed, we will consider every possible option that helps us achieve near-term cost competitiveness and, in turn, assures our company’s long-term viability.”

     Operationally, Alaska Airlines’ passenger traffic in the second quarter increased 11.6 percent on a capacity increase of 8.2 percent. Alaska’s load factor increased 2.2 percentage points to 72.8 percent compared to the same period in 2003. Alaska’s operating revenue per available seat mile (ASM) increased 4.6 percent, while its operating cost per ASM excluding fuel and impairment charge decreased 4.1 percent. Alaska’s pretax loss for the quarter was $2.8 million, compared to pretax income of $59.6 million in 2003. Excluding the notable items referenced above, Alaska’s pretax income was $14.4 million for the quarter compared to $6.8 million in 2003.

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     Horizon Air’s passenger traffic in the second quarter increased 33.8 percent on a 25.1 percent capacity increase. Horizon’s load factor increased by 4.2 percentage points to 67.5 percent compared to the same period in 2003. Horizon’s operating revenue per ASM decreased 9.9 percent, while its operating cost per ASM excluding fuel and impairment charge decreased 17.2 percent. The decrease in Horizon’s revenue per ASM and cost per ASM excluding fuel and impairment charge is largely due to the addition of Horizon’s contract flying for Frontier Airlines. This flying represented 22.5 percent of Horizon’s capacity during the second quarter and 9.6 percent of its passenger revenues. Horizon’s pretax income for the quarter was $4.7 million, compared to a pretax income of $15.7 million in 2003. Excluding the notable items referenced above, Horizon’s pretax income was $2.4 million for the quarter compared to a pretax loss of $2.9 million in 2003.

     Alaska Air Group had cash and short-term investments at June 30, 2004 of approximately $865 million compared to $812 million at December 31, 2003. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 79 percent as of June 30, 2004 compared to 77 percent as of December 31, 2003.

     A summary of financial and statistical data for Alaska Airlines and Horizon Air as well as a reconciliation of the reported non-GAAP financial measures can be found on pages 6 to 10.

     A conference call regarding the second quarter 2004 results will be simulcast via the internet at 8:30 a.m. Pacific Daylight Time. It may be accessed through the company’s website at www.alaskaair.com. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at www.alaskaair.com.

     This report may contain forward-looking statements that 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 future financial performance and involve known and unknown risks and uncertainties that may cause 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 actual results to differ from expectations are: economic conditions; the continued impact of terrorist attacks, global instability and potential U.S. military involvement;

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the company’s significant indebtedness; downgrades of the company’s credit ratings; the competitive environment and other trends in the company’s industry; changes in laws and regulations; changes in the company’s operating costs including fuel; changes in the company’s business plans; interest rates and the availability of financing; liability and other claims asserted against the company; labor disputes; the company’s ability to attract and retain qualified personnel; and inflation. For a discussion of these and other risk factors, see Item 1 of the company’s Annual Report on Form 10-K/A for the year ended December 31, 2003. 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. The company operates 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 the company’s business or events described in any forward-looking statements. The company disclaims any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results.

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ALASKA AIR GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Millions Except Per Share Amounts)

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Alaska Air Group, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

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Alaska Airlines Financial and Statistical Data

NM = Not Meaningful

(a) See Note A on Page 8

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Horizon Air Financial and Statistical Data

NM = Not Meaningful

(a) See Note A on Page 8

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Note A:
Pursuant to Item 10 of Regulation S-K, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. The non-GAAP financial measures provide management the ability to measure and monitor our performance both with and without the cost of aircraft fuel (including the impact of our fuel hedging program where appropriate), the impairment charge related to Alaska’s 737-200 aircraft and Horizon’s F-28 aircraft and spare engines, government compensation and mark-to-market hedging gains recorded during the second quarter of 2004. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond our control, it is our view that the measurement and monitoring of performance without fuel is important. In addition, we believe the disclosure of financial performance without impairment charges, government compensation and mark-to-market hedging gains is useful to investors in evaluating our ongoing operational performance. Finally, these non-GAAP financial measures are also more comparable to financial measures reported to the Department of Transportation by other major network airlines.

The following tables reconcile our non-GAAP financial measures to the most directly comparable GAAP financial measures for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:

Alaska Airlines, Inc.:

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Horizon Air Industries, Inc.

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Air Group Net Income (Loss) and EPS Reconciliation:

The following table summarizes Alaska Air Group, Inc.’s net earnings (loss) and diluted income (loss) per share during 2003 and 2004 excluding impairment charges, the second quarter of 2004 hedging mark-to-market gain of $22.3 million ($14.8 million, net of tax), government compensation and as reported in accordance with GAAP (in millions except per share amounts):

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