OPERATING SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2020

Alaska Air Group has two operating airlines—Alaska and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon, as well as with third-party carriers, under which Alaska receives all passenger revenues.

Under U.S. GAAP, operating segments are defined as components of a business for which there is discrete financial information that is regularly assessed by the Chief Operating Decision Maker (CODM) in making resource allocation decisions. Financial performance for the operating airlines and CPAs is managed and reviewed by the Company's CODM as part of three reportable operating segments:

•Mainline - includes scheduled air transportation on Alaska's Boeing or Airbus jet aircraft for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, and Costa Rica.

•Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. under a CPA. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.

•Horizon - includes the capacity sold to Alaska under CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.

The CODM makes resource allocation decisions for these reporting segments based on flight profitability data, aircraft type, route economics and other financial information.

The "Consolidating and Other" column reflects Air Group parent company activity, McGee Air Services, consolidating entries and other immaterial business units of the company. The “Air Group Adjusted” column represents a non-GAAP measure that is

used by the Company's CODM to evaluate performance and allocate resources. Adjustments are further explained below in reconciling to consolidated GAAP results.

Operating segment information is as follows (in millions):


	Three Months Ended March 31, 2020
	Mainline		Regional		Horizon		Consolidating & Other^(a)		Air Group Adjusted^(b)		Special Items^(c)		Consolidated
Operating revenues
Passenger revenues	$	1,234	$	247	$	—	$	—	$	1,481	$	—	$	1,481
CPA revenues	—		—		105		(105)		—		—		—
Mileage Plan other revenue	98		11		—		—		109		—		109
Cargo and other	44		—		—		2		46		—		46
Total operating revenues	1,376		258		105		(103)		1,636		—		1,636
Operating expenses
Operating expenses, excluding fuel	1,159		269		92		(110)		1,410		163		1,573
Economic fuel	313		62		—		—		375		9		384
Total operating expenses	1,472		331		92		(110)		1,785		172		1,957
Nonoperating income (expense)
Interest income	14		—		—		(5)		9		—		9
Interest expense	(12)		—		(5)		4		(13)		—		(13)
Interest capitalized	3		—		—		—		3		—		3
Other - net	6		—		—		(1)		5		—		5
Total nonoperating income (expense)	11		—		(5)		(2)		4		—		4
Income (loss) before income tax	$	(85)	$	(73)	$	8	$	5	$	(145)	$	(172)	$	(317)


	Three Months Ended March 31, 2019
	Mainline		Regional		Horizon		Consolidating & Other^(a)		Air Group Adjusted^(b)		Special Items^(c)		Consolidated
Operating revenues
Passenger revenues	1,422		294		—		—		1,716		—		1,716
CPA revenues	—		—		116		(116)		—		—		—
Mileage Plan other revenue	100		10		—		—		110		—		110
Cargo and other	48		1		1		—		50		—		50
Total operating revenues	1,570		305		117		(116)		1,876		—		1,876
Operating expenses
Operating expenses, excluding fuel	1,152		274		97		(118)		1,405		26		1,431
Economic fuel	358		66		—		—		424		(4)		420
Total operating expenses	1,510		340		97		(118)		1,829		22		1,851
Nonoperating income (expense)
Interest income	16		—		—		(7)		9		—		9
Interest expense	(21)		—		(8)		7		(22)		—		(22)
Interest capitalized	4		—		—		—		4		—		4
Other - net	(10)		—		—		—		(10)		—		(10)
Total nonoperating income (expense)	(11)		—		(8)		—		(19)		—		(19)
Income (loss) before income tax	$	49	$	(35)	$	12	$	2	$	28	$	(22)	$	6

(a)Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units.

(b)The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and excludes certain income and charges.

(c)Includes merger-related costs, impairment charges associated with the impact of COVID-19 and mark-to-market fuel hedge accounting adjustments.

Total assets were as follows (in millions):


	March 31, 2020		December 31, 2019
Mainline	$	19,677	$	19,207
Horizon	1,183		1,266
Consolidating & Other	(7,497)		(7,480)
Consolidated	$	13,363	$	12,993