8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

April 25, 2014

(Date of earliest event reported)

ALASKA AIR GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

1-8957	91-1292054
(Commission File Number)	(IRS Employer Identification No.)

19300 International Boulevard, Seattle, Washington	98188
(Address of Principal Executive Offices)	(Zip Code)

(206) 392-5040

(Registrant's Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

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):

o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02.  Results of Operations And Financial Condition

Alaska Air Group, Inc. today issued a press release reporting financial results for the first quarter of 2014. The press release is filed as Exhibit 99.1.

ITEM 7.01.Regulation FD Disclosure

Pursuant to 17 CFR Part 243 (“Regulation FD”), the Company is submitting information relating to its financial and operational outlook in an Investor Update as attached in Exhibit 99.2.

In accordance with General Instruction B.2 of Form 8-K, the information under this item and Exhibit 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.  This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.

ITEM 9.01  Financial Statements and Other Exhibits

Exhibit 99.1    First Quarter 2014 Earnings Press Release dated April 25, 2014

Exhibit 99.2    Investor Update dated April 25, 2014

Signatures

Pursuant to the requirements 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.

Registrant

Date: April 25, 2014

/s/ Brandon S. Pedersen

Brandon S. Pedersen

Vice President/Finance and Chief Financial Officer

EX-99.1

Exhibit 99.1

Media contact:

Bobbie Egan

Media Relations Manager

(206) 392-5134

FOR IMMEDIATE RELEASE  April 25, 2014

ALASKA AIR GROUP REPORTS RECORD FIRST QUARTER 2014 RESULTS

Financial Highlights:

• Reported record first quarter net income, excluding special items, of $89 million, or $1.28 per diluted share, compared to adjusted net income of $44 million, or $0.62 per diluted share in the prior-year quarter. This quarter's results compare to a First Call analyst consensus estimate of $1.24 per share.

• Recorded net income for the first quarter under Generally Accepted Accounting Principles (GAAP) of $94 million or $1.35 per diluted share, compared to net income of $37 million, or $0.51 per diluted share in 2013.

• Reported record adjusted pretax margin for the first quarter of 11.8%.

• Achieved trailing twelve-month return on invested capital of 14.8% compared to 13.4% in the twelve months ended March 31, 2013.

• Paid a $0.25 per-share quarterly cash dividend on March 11 totaling $17 million. This is a 25% increase from the previous cash dividend payment of $0.20 per-share.

• Repurchased 352,851 shares of common stock for $30 million in the first quarter of 2014.

• Lowered adjusted debt-to-total-capitalization ratio by 3%, to 32%, from December 31, 2013.

• Held $1.4 billion in unrestricted cash and marketable securities as of March 31, 2014.

Operational Highlights:

• Held the No. 1 spot in U.S. Department of Transportation on-time performance among the 9 largest U.S. airlines for

the twelve months ended February 2014.

• Named No. 1 on-time carrier in North America for the fourth year in a row from FlightStats in February 2014. For 2013, Alaska Airlines had the best on-time departure and on-time arrival statistics, which were approximately three points higher than the second place airlines in both categories.

• Launched online self-tag baggage options for passengers flying from Seattle to San Diego, Anchorage, or Juneau with plans to launch at other airports later in the summer.

• Reached agreement on a five-year contract with 2,500 clerical, office and passenger service employees at Alaska Airlines, represented by the International Association of Machinists and Aerospace Workers.

• Reached agreement on a four-year contract with Horizon Air dispatchers, represented by the Transport Workers Union.

• Began Q-400 service from Anchorage to Fairbanks and Kodiak in the state of Alaska, operated by Horizon Air.

• Announced service to New Orleans, Tampa, Detroit, Baltimore, and Albuquerque from Seattle, as well as service to Kalispell from Portland.

• Filed an application to begin seasonal non-stop service between Seattle and Cancun, Mexico.

1

SEATTLE — Alaska Air Group, Inc., (NYSE: ALK) today reported first quarter 2014 GAAP net income of $94 million, or $1.35 per diluted share, compared to $37 million, or $0.51 per diluted share in the first quarter of 2013. Excluding the impact of mark-to-market fuel hedge adjustments of $8 million ($5 million after tax, or $0.07 per diluted share), the company reported record adjusted net income of $89 million, or $1.28 per diluted share, compared to adjusted net income of $44 million, or $0.62 per diluted share, in 2013.

“Our record first quarter results reflect strong demand for our service and the efforts we’ve taken to improve the value we bring to our customers,” CEO Brad Tilden said. “Our solid foundation of award-winning service, excellent operational performance, low costs and low fares, and the best employees in the business will help us sustain our success in the face of increasing competition.”

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the first quarters of 2014 and 2013 to adjusted amounts:

	Three Months Ended March 31,
	2014						2013
(in millions, except per-share amounts)	Dollars			Diluted EPS			Dollars		Diluted EPS
Reported GAAP net income	$	94		$	1.35		$	37	$	0.51
Mark-to-market fuel hedge adjustments, net of tax	(5		)	(0.07		)	7		0.11
Non-GAAP adjusted income and per-share amounts	$	89		$	1.28		$	44	$	0.62

Statistical data, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables. A glossary of financial terms can be found on the last page of this release.

A conference call regarding the first quarter results will be simulcast via the Internet at 8:00 a.m. Pacific time on April 25, 2014. It can be accessed through the company's website at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.

###

References in this news release to “Air Group,” “company,” “we,” “us” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon,” respectively, and together as our “airlines.”

This news release may contain forward-looking statements subject to the safe harbor protection provided by 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. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the company's Annual Report on Form 10-K for the year ended December 31, 2013. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. 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 expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

###

Alaska Airlines, a subsidiary of Alaska Air Group (NYSE: ALK), together with its partner regional airlines, serves nearly 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines has ranked “Highest in Customer Satisfaction Among Traditional Network Carriers” in the J.D. Power and Associates North America Airline Satisfaction Study^SM for six consecutive years from 2008 to 2013. For reservations, visit www.alaskaair.com. For more news and information, visit the Alaska Airlines Newsroom at www.alaskaair.com/newsroom.

2

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Alaska Air Group, Inc.
	Three Months Ended March 31,
(in millions, except per-share amounts)	2014			2013			Change
Operating Revenues:
Passenger
Mainline	$	854		$	796		7	%
Regional	186			182			2	%
Total passenger revenue	1,040			978			6	%
Freight and mail	24			26			(8	)%
Other - net	158			129			22	%
Total Operating Revenues	1,222			1,133			8	%
Operating Expenses:
Wages and benefits	272			264			3	%
Variable incentive pay	25			21			19	%
Aircraft fuel, including hedging gains and losses	358			381			(6	)%
Aircraft maintenance	51			66			(23	)%
Aircraft rent	28			30			(7	)%
Landing fees and other rentals	69			60			15	%
Contracted services	60			53			13	%
Selling expenses	46			38			21	%
Depreciation and amortization	70			69			1	%
Food and beverage service	21			20			5	%
Other	81			67			21	%
Total Operating Expenses	1,081			1,069			1	%
Operating Income	141			64			120	%
Nonoperating Income (Expense):
Interest income	5			4
Interest expense	(12		)	(16		)
Interest capitalized	5			5
Other - net	13			2
	11			(5		)
Income Before Income Tax	152			59
Income tax expense	58			22
Net Income	$	94		$	37
Basic Earnings Per Share:	$	1.37		$	0.52
Diluted Earnings Per Share:	$	1.35		$	0.51
Shares Used for Computation:
Basic	68.667			70.431
Diluted	69.411			71.414
Cash dividend declared per share:	$	0.25		—

3

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.
(in millions)	March 31, 2014		December 31, 2013
Cash and marketable securities	$	1,420	$	1,330
Total current assets	1,934		1,762
Property and equipment-net	3,930		3,893
Other assets	197		183
Total assets	6,061		5,838
Air traffic liability	749		564
Current portion of long-term debt	113		117
Other current liabilities	893		899
Current liabilities	1,755		1,580
Long-term debt	721		754
Other liabilities and credits	1,490		1,475
Shareholders' equity	2,095		2,029
Total liabilities and shareholders' equity	$	6,061	$	5,838
Debt to Capitalization, adjusted for operating leases(a)	32%:68%		35%:65%
Number of common shares outstanding	68.789		68.746

^(a)  Calculated using the present value of remaining aircraft lease payments.

4

OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.
	Three Months Ended March 31,
	2014			2013			Change
Consolidated Operating Statistics:(a)
Revenue passengers (000)	6,649			6,346			4.8	%
RPMs (000,000) "traffic"	7,078			6,796			4.1	%
ASMs (000,000) "capacity"	8,352			7,983			4.6	%
Load factor	84.7		%	85.1		%	(0.4 pts	)
Yield		14.70	¢		14.38	¢	2.2	%
PRASM		12.45	¢		12.24	¢	1.7	%
RASM		14.64	¢		14.19	¢	3.2	%
CASM excluding fuel(b)		8.66	¢		8.62	¢	0.5	%
Economic fuel cost per gallon(c)	$	3.32		$	3.48		(4.6	%)
Fuel gallons (000,000)	110			106			3.8	%
Average number of full-time equivalent employees	12,386			12,013			3.1	%
Mainline Operating Statistics:
Revenue passengers (000)	4,737			4,534			4.5	%
RPMs (000,000) "traffic"	6,402			6,172			3.7	%
ASMs (000,000) "capacity"	7,495			7,203			4.1	%
Load factor	85.4		%	85.7		%	(0.3 pts	)
Yield		13.34	¢		12.90	¢	3.4	%
PRASM		11.40	¢		11.05	¢	3.2	%
RASM		13.57	¢		12.97	¢	4.6	%
CASM excluding fuel(b)		7.68	¢		7.59	¢	1.2	%
Economic fuel cost per gallon(c)	$	3.32		$	3.47		(4.3	%)
Fuel gallons (000,000)	96			93			3.2	%
Average number of full-time equivalent employees	9,591			9,351			2.6	%
Aircraft utilization	10.2			10.6			(3.8	%)
Average aircraft stage length	1,201			1,203			(0.2	%)
Operating fleet	133			127			6 a/c
Regional Operating Statistics:(d)
Revenue passengers (000)	1,912			1,812			5.5	%
RPMs (000,000) "traffic"	675			624			8.2	%
ASMs (000,000) "capacity"	857			780			9.9	%
Load factor	78.8		%	80.0		%	(1.2 pts	)
Yield		27.53	¢		29.09	¢	(5.4	%)
PRASM		21.69	¢		23.27	¢	(6.8	%)
Operating fleet (Horizon only)	51			48			3	a/c

^(a)  Except for full-time equivalent employees, data includes information related to third-party regional capacity purchase flying arrangements.

^(b)  See a reconciliation of operating expenses excluding fuel and Note A for a discussion of why these measures may be important to investors in the accompanying pages.

^(c)  See a reconciliation of economic fuel cost in the accompanying pages.

^(d)  Data presented includes information related to flights operated by Horizon Air and third-party carriers.

5

OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.
	Three Months Ended March 31, 2014
	Alaska
(in millions)	Mainline			Regional			Horizon			Consolidating			Air Group Adjusted(a)			Special Items(b)			Consolidated
Operating revenues
Passenger
Mainline	$	854		$	—		$	—		$	—		$	854		$	—		$	854
Regional	—			186			—			—			186			—			186
Total passenger revenues	854			186			—			—			1,040			—			1,040
CPA revenues	—			—			91			(91		)	—			—			—
Freight and mail	23			1			—			—			24			—			24
Other-net	140			17			1			—			158			—			158
Total operating revenues	1,017			204			92			(91		)	1,222			—			1,222
Operating expenses
Operating expenses, excluding fuel	576			151			86			(90		)	723			—			723
Economic fuel	318			48			—			—			366			(8		)	358
Total operating expenses	894			199			86			(90		)	1,089			(8		)	1,081
Nonoperating income (expense)
Interest income	5			—			—			—			5			—			5
Interest expense	(8		)	—			(4		)	—			(12		)	—			(12		)
Other	18			(1		)	1			—			18			—			18
	15			(1		)	(3		)	—			11			—			11
Income (loss) before income tax	$	138		$	4		$	3		$	(1	)	$	144		$	8		$	152

	Three Months Ended March 31, 2013
	Alaska
(in millions)	Mainline			Regional		Horizon			Consolidating			Air Group Adjusted(a)			Special Items(b)			Consolidated
Operating revenues
Passenger
Mainline	$	796		$	—	$	—		$	—		$	796		$	—		$	796
Regional	—			182		—			—			182			—			182
Total passenger revenues	796			182		—			—			978			—			978
CPA revenues	—			—		94			(94		)	—			—			—
Freight and mail	25			1		—			—			26			—			26
Other-net	113			14		2			—			129			—			129
Total operating revenues	934			197		96			(94		)	1,133			—			1,133
Operating expenses
Operating expenses, excluding fuel	547			147		89			(95		)	688			—			688
Economic fuel	323			46		—			—			369			12			381
Total operating expenses	870			193		89			(95		)	1,057			12			1,069
Nonoperating income (expense)
Interest income	4			—		—			—			4			—			4
Interest expense	(11		)	—		(3		)	(2		)	(16		)	—			(16		)
Other	6			—		—			1			7			—			7
	(1		)	—		(3		)	(1		)	(5		)	—			(5		)
Income (loss) before income tax	$	63		$	4	$	4		$	—		$	71		$	(12	)	$	59

^(a)  The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain revenues/charges. See Note A for further information in the accompanying pages.

^(b)  Includes mark-to-market fuel-hedge accounting charges.

6

Alaska Air Group, Inc.
CASM EXCLUDING FUEL RECONCILIATION (unaudited)
	Three Months Ended March 31,
(in cents)	2014			2013
Consolidated:
CASM		12.94	¢		13.39	¢
Less the following components:
Aircraft fuel, including hedging gains and losses	4.28			4.77
CASM excluding fuel		8.66	¢		8.62	¢
Mainline:
CASM		11.82	¢		12.24	¢
Less the following components:
Aircraft fuel, including hedging gains and losses	4.14			4.65
CASM excluding fuel		7.68	¢		7.59	¢

FUEL RECONCILIATIONS (unaudited)
	Three Months Ended March 31,
	2014						2013
(in millions, except for per-gallon amounts)	Dollars			Cost/Gallon			Dollars		Cost/Gallon
Raw or "into-plane" fuel cost	$	348		$	3.16		$	357	$	3.37
(Gains) losses on settled hedges	18			0.16			12		0.11
Consolidated economic fuel expense	366			3.32			369		3.48
Mark-to-market fuel hedge adjustment	(8		)	(0.07		)	12		0.11
GAAP fuel expense	$	358		$	3.25		$	381	$	3.59
Fuel gallons	110						106

7

Note A: Pursuant to Regulation G, 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. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:

• By eliminating fuel expense and certain special items from our unit metrics, we believe that we have better visibility into the results of operations without the consideration of accounting changes or our non-fuel cost-reduction initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.

• Cost per ASM (CASM) excluding fuel and certain special items is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.

• Adjusted Income before Income Taxes and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan that covers all Air Group employees.

• CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they compare our airlines 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 certain items, such as fleet transition costs or special revenues, 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 passenger 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.

Note B: Air Group has two operating airlines - Alaska Airlines and Horizon Air. Each is a regulated airline with separate management teams primarily in operational roles. To manage the two operating airlines, management views the business in three operating segments. Alaska operates a fleet of passenger jets (Alaska Mainline) and contracts with Horizon, SkyWest Airlines, Inc. (SkyWest), and Peninsula Airways, Inc. (PenAir) for regional capacity under which Alaska receives all passenger revenue from those flights (Alaska Regional). Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a capacity purchase arrangement (Horizon). The Company believes the amounts paid by Alaska to Horizon approximate current market rates received by other regional carriers for similar flying and are available to pay for various Horizon operating expenses such as crew expenses, maintenance, and aircraft ownership costs. All inter-company revenues and expenses between Alaska and Horizon are eliminated in consolidation.

8

Glossary of Terms

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

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 the present value of future operating lease payments) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share 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 our fuel-hedging program

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 jets and all associated revenues and costs

PRASM - passenger revenue per ASM; commonly called “passenger unit revenue”

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, and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon, SkyWest, and PenAir. In this segment, Alaska Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs). Additionally, Alaska Regional includes an allocation of corporate overhead such as IT, finance, 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

9

EX-99.2

Exhibit 99.2

Investor Update - April 25, 2014

References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

This update includes forecasted operational and financial information for our mainline and consolidated operations. Our disclosure of operating cost per available seat mile, excluding fuel and other items, provides us (and may provide investors) with the ability to measure and monitor our performance without these items. The most directly comparable GAAP measure is total operating expenses per available seat mile. However, due to the large fluctuations in fuel prices, we are unable to predict total operating expenses for any future period with any degree of certainty. In addition, we believe the disclosure of fuel expense on an economic basis is useful to investors in evaluating our ongoing operational performance. Please see the cautionary statement under “Forward-Looking Information.”

We are providing information about estimated fuel prices and our hedging program. Management believes it is useful to compare results between periods on an “economic basis.” Economic fuel expense is defined as the raw or “into-plane” fuel cost less any cash we receive from hedge counterparties for hedges that settle during the period, offset by the recognition of premiums originally paid for those hedges that settle during the period. Economic fuel expense more closely approximates the net cash outflow associated with purchasing fuel for our operation.

Forward-Looking Information

This update contains forward-looking statements subject to the safe harbor protection provided by 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. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. 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 expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

ALASKA AIRLINES - MAINLINE

Forecast Information

	Forecast Q2 2014	Change Y-O-Y	Forecast Full Year 2014	Change Y-O-Y	Prior Guidance March 14, 2014
Capacity (ASMs in millions)	8,025 - 8,075	~ 4%	32,000 - 32,500	~ 6%	31,750 - 32,250
Cost per ASM excluding fuel and special items (cents)	7.46¢ - 7.51¢	~ 2%	7.53¢ - 7.58¢	~ flat	7.57¢ - 7.62¢
Fuel gallons (000,000)	101	~ 1%	403	~ 2.5%	400
Economic fuel cost per gallon(a)	$3.26	~ (0.5)%	(a)	(a)	(a)

^(a)  Our economic fuel cost per gallon estimate for the second quarter includes the following per-gallon assumptions:  crude oil cost - $2.43 ($102 per barrel), refining margin - 58 cents, cost of settled hedges - 6 cents, with the remaining difference due to taxes and other into-plane costs. Because of volatility of fuel prices, we do not give full-year economic fuel estimates.

Changes in Advance Booked Load Factors (percentage of ASMs that are sold)^(a) 

	April	May	June
Point Change Y-O-Y	flat	+0.5 pts	flat
Prior Guidance Mar. 14, 2014 - Point Change Y-O-Y	+0.5 pts	+0.5 pts	N/A

^(a)  Percentage point change compared to the same point in time last year.

AIR GROUP - CONSOLIDATED

Forecast Information

	Forecast Q2 2014	Change Y-O-Y	Forecast Full Year 2014	Change Y-O-Y	Prior Guidance March 14, 2014
Capacity (ASMs in millions)	8,925 - 8,975	~ 4.5%	35,600 - 36,100	~ 6.5%	35,500 - 36,000
Cost per ASM excluding fuel and special items (cents)	8.41¢ - 8.46¢	~ 1.5%	8.43¢ - 8.48¢	~ flat	8.47¢ - 8.52¢
Fuel gallons (000,000)	116	~ 2.5%	465	~ 4%	465
Economic fuel cost per gallon(a)	$3.26	~ (0.5)%	(a)	(a)	(a)

^(a)  Please see note^(a) in Mainline.

Changes in Advance Booked Load Factors (percentage of ASMs that are sold)^(a) 

	April	May	June
Point Change Y-O-Y	flat	+0.5 pts	flat
Prior Guidance Mar. 14, 2014 - Point Change Y-O-Y	+0.5 pts	+0.5 pts	N/A

^(a)  Percentage point change compared to the same point in time last year.

Nonoperating Income

We expect that our consolidated nonoperating income will be approximately $1 million in the second quarter of 2014.

AIR GROUP - CONSOLIDATED (continued)

Capital Expenditures^(a) 

Total expected capital expenditures are as follows (in millions): 

	2014		2015		2016		2017
Aircraft and aircraft purchase deposits - firm	$	290	$	335	$	270	$	330
Replacement options expected to be exercised	10		75		60		—
Other flight equipment	125		35		35		25
Other property and equipment	105		80		75		75
Total property and equipment additions	$	530	$	525	$	440	$	430
Other aircraft and aircraft deposits, if exercised(b)	$	25	$	195	$	250	$	300

^(a)  Preliminary estimate, subject to change.

^(b)  Alaska has options to acquire 62 737 aircraft with deliveries from 2016 through 2024. Horizon has options to acquire 7 Q400 aircraft with deliveries from 2015 through 2018.

Projected Fleet Count^(a) 

	Actual Fleet Count		Expected Fleet Activity(b)
Aircraft	Dec 31, 2013	Mar 31, 2014	Remaining2014	Dec 31, 2014	2015 Changes	Dec 31, 2015
737 Freighters & Combis	6	6	—	6	—	6
737 Passenger Aircraft	125	127	1	128	1	129
Total Mainline Fleet	131	133	1	134	1	135
Q400	51	51	—	51	—	51
Total	182	184	1	185	1	186

^(a)  The expected fleet counts at December 31, 2014 and 2015 are subject to change.

^(b)  Expected fleet activity includes aircraft deliveries, net of planned retirements and lease returns.

Future Fuel Hedge Positions^(a) 

We use both call options on crude oil futures and swap instruments on LA Jet refining margins to hedge against price volatility of future jet fuel consumption. We have refining margin swaps in place for approximately 50% of our second quarter of 2014 estimated jet fuel purchases at an average price of 57 cents cents per gallon. Our crude oil positions are as follows:

	Approximate % of Expected Fuel Requirements		Weighted-Average Crude Oil Price per Barrel	Average Premium Cost per Barrel
Second Quarter 2014	50	%	$103	$8
Third Quarter 2014	50	%	$104	$7
Fourth Quarter 2014	40	%	$104	$7
Full Year 2014	47	%	$104	$8
First Quarter 2015	30	%	$104	$6
Second Quarter 2015	22	%	$103	$6
Third Quarter 2015	17	%	$106	$5
Fourth Quarter 2015	11	%	$106	$5
Full Year 2015	20	%	$104	$6
First Quarter 2016	6	%	$105	$4
Full Year 2016	1	%	$105	$4

^(a) 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 benefit from a decline in crude oil prices, as there is no cash outlay other than the premiums we pay to enter into the contracts.

AIR GROUP - CONSOLIDATED (continued)

Fuel Price Sensitivity

The following table depicts a forward-looking sensitivity of our full year 2014 economic fuel price per gallon given actual economic costs incurred to date, our current crude oil and refining margin positions, and a range of possible future crude oil and refining margin prices:

		Crude Price per Barrel
		$	70	$	80	$	90	$	100	$	110	$	120
Refining Margin (cents per Gallon)	40	$	2.60	$	2.78	$	2.96	$	3.13	$	3.27	$	3.37
	50	$	2.66	$	2.84	$	3.02	$	3.19	$	3.33	$	3.43
	60	$	2.73	$	2.91	$	3.09	$	3.25	$	3.40	$	3.50
	70	$	2.79	$	2.97	$	3.15	$	3.32	$	3.46	$	3.56
	80	$	2.85	$	3.03	$	3.21	$	3.38	$	3.53	$	3.62
	90	$	2.92	$	3.10	$	3.28	$	3.45	$	3.59	$	3.69

AAG Annual Cash Distributions

Based on improved cash flow from operations, lower debt levels and higher pension funded status, an increasing portion of capital has shifted toward shareholders.