FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

July 21, 2005
(Date of earliest event reported)

ALASKA AIR GROUP, INC.

Delaware
(State or Other Jurisdiction of Incorporation)

(206) 392-5040

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

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Table of Contents

ITEM 2.02.
Results of Operations And Financial Condition

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Signature

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EXHIBIT 99.1

ALASKA AIR GROUP REPORTS SECOND QUARTER RESULTS

     SEATTLE — Alaska Air Group, Inc. (NYSE:ALK) today reported second quarter net income of $17.4 million, or $0.56 per diluted share, compared to a net loss of $1.7 million, or $0.06 per diluted share, in the second quarter of 2004.

     Second quarter results include a restructuring charge of $14.7 million ($9.2 million, net of tax, or $0.28 per diluted share) for employee severance and related costs resulting primarily from the subcontracting of the Seattle ramp service function in May 2005. Second quarter results also include $3.0 million ($1.9 million, net of tax, or $0.06 per diluted share) in mark-to-market hedging gains on fuel hedges that settle in future periods, compared to $22.3 million ($14.8 million, net of tax, or $0.55 per share) in 2004. Without these items, and excluding aircraft impairment charges of $37.2 million ($24.7 million, net of tax, or $0.92 per share) in the second quarter of 2004, net income would have been $24.7 million, or $0.74 per diluted share for the second quarter of 2005, compared to net income of $8.2 million, or $0.31 per diluted share in the second quarter of 2004.

     “Although we are seeing gains in passenger loads and ticket prices, we are facing operational problems which, if we don’t correct them, will impact the long-term reputation of Alaska Airlines,” said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. “Our primary focus is on improving our on-time performance in order to deliver on customer promises and reduce the stress on our employees.”

     Alaska Airlines’ passenger traffic in the second quarter increased 5.2 percent on a capacity decrease of 1.6 percent. Alaska’s load factor increased 5.1 percentage points to 77.9 percent compared to the same period in 2004. Alaska’s operating revenue per available seat mile (ASM) increased 8.4 percent, while its operating cost per ASM excluding fuel, restructuring and impairment charges increased 1.4 percent. Alaska’s pretax income for the quarter was $22.1 million, compared to a pretax loss of $2.8 million in the same period of 2004. Excluding the notable items referenced above, Alaska’s pretax income was $34.2 million for the quarter compared to $14.4 million in the second quarter of 2004.

     Horizon Air’s passenger traffic in the second quarter increased 15.9 percent on a 7.2 percent capacity increase. Horizon’s load factor increased by 5.5 percentage points to 73.0 percent compared to the same

EXHIBIT 99.1

period in 2004. Horizon’s operating revenue per ASM increased 5.2 percent, while its operating cost per ASM excluding fuel and impairment charges decreased 4.9 percent. Horizon’s pretax income for the quarter was $11.1 million, compared to $4.7 million in the second quarter of 2004. Excluding the notable items referenced above, Horizon’s pretax income was $10.7 million for the quarter compared to $2.4 million in the same period in 2004.

     Alaska Air Group had cash and short-term investments at June 30, 2005 of approximately $726 million, compared to $874 million at December 31, 2004.

     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 through 10.

     A conference call regarding the first quarter 2005 results will be simulcast via the internet at 8:30 a.m. Pacific Time on July 21, 2005. 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 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: changes in our operating costs including fuel, which can be volatile; the competitive environment and other trends in our industry; our ability to meet our cost reduction goals; labor disputes; economic conditions; our reliance on automated systems; increases in government fees and taxes; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; changes in laws and regulations; liability and other claims asserted against us; operational disruptions; compliance with financial covenants; our ability to attract and retain qualified personnel; third-party vendors and partners; continuing operating losses; our significant indebtedness; downgrades of our credit ratings and the availability of financing. For a discussion of these and other risk factors, see Item 7 of the Company’s Annual Report for the year ended December 31, 2004 on Form 10-K. All of the forward-looking statements are qualified in their entirety by reference to the risk factors

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EXHIBIT 99.1

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.

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EXHIBIT 99.1

ALASKA AIR GROUP, INC.

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

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EXHIBIT 99.1

Alaska Air Group, Inc.
 
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

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EXHIBIT 99.1

Alaska Airlines Financial and Statistical Data

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EXHIBIT 99.1

Horizon Air Financial and Statistical Data

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EXHIBIT 99.1

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 performance both with and without the cost of aircraft fuel (including the gains and losses associated with our fuel hedging program where appropriate), restructuring charges, and aircraft impairment charges. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond our control and we record changes in the fair value of our hedge portfolio in our income statement, 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 and restructuring charges is useful to investors. Finally, these non-GAAP financial measures are also more comparable to 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.:

EXHIBIT 99.1

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EXHIBIT 99.1

Air Group Net Income (Loss) and EPS Reconciliation:

The following table reconciles Alaska Air Group, Inc.’s net income (loss) and diluted income (loss) per share during 2005 and 2004 excluding the cumulative effect of the accounting change, restructuring and impairment charges, and mark-to-market gains of fuel hedges that settle in future periods to the reported GAAP amounts (in millions except per share amounts):

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EXHIBIT 99.1

Air Group EPS Calculations:

The following table summarizes Alaska Air Group, Inc.’s basic and diluted per share calculations for earnings before the accounting change and net income (loss) (in millions except per share amounts):

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