Exhibit 99.1

Contact:	Shannon Alberts	-or-	Amanda Tobin Bielawski
	Investor Relations		Corporate Communications
	206/392-5218		206/392-5134

FOR IMMEDIATE RELEASE October 24, 2006

ALASKA AIR GROUP REPORTS THIRD QUARTER RESULTS

SEATTLE — Alaska Air Group, Inc. (NYSE:ALK) today reported a third quarter net loss of $17.4 million, or $0.44 per diluted share, compared to net income of $90.2 million, or $2.71 per diluted share, in the third quarter of 2005. The 2006 results include charges related to the buyout of five MD-80 leases and a voluntary severance program in connection with a new labor contract, as well as mark-to-market fuel hedging losses related to contracts that settle in future quarters and the reclassification of previously recorded mark-to-market gains on hedges that settled during the quarter. The 2005 results included mark-to-market fuel hedging gains, a refund of Mexico navigation fees and a nominal adjustment to previously recorded restructuring charges. Excluding the impact of these items, the company would have reported net income in the third quarter of 2006 of $77.9 million, or $1.93 per diluted share, compared to $71.5 million, or $2.16 per diluted share, in the third quarter of 2005.

“The quarter’s adjusted net profit reflects the hard work of employees across our system and the progress we are making on our plan,” said CEO Bill Ayer. “However, slower unit revenue growth toward the end of the quarter underscores the need to continue to reduce costs and improve processes in order to offer our customers a product they prefer at a price they are willing to pay.”

In previous quarters, Alaska Air Group excluded from adjusted earnings its mark-to-market fuel hedging gains related to contracts that settle in future quarters. Consistent with that practice, the company excluded from the current quarter’s adjusted results the mark-to-market fuel hedging losses that settle in future quarters. While the recent decline in fuel prices has caused the value of the portfolio to decline, it is still in the money. The fuel-hedging program saved the company approximately $27.4 million in economic fuel expense during the third quarter.

During the quarter, the company accrued an additional $1.7 million for Horizon Air employees and $3.3 million for Alaska Airlines employees in connection with various gain-sharing plans, for a year-to-date total accrual of approximately $24 million.

1

In addition, Alaska Airlines contributed $72 million to its defined benefit plans during 2006, and $265 million since September 11, 2001.

Alaska Airlines’ passenger traffic in the third quarter increased 6.0 percent on a capacity increase of 5.6 percent. Alaska’s load factor increased 0.2 percentage points to 79.2 percent, compared to the same period in 2005. Alaska’s operating revenue per available seat mile (ASM) increased 4.4 percent, while its operating cost per ASM excluding fuel, and the items noted above decreased 2.7 percent. Alaska’s pretax loss for the quarter was $27.9 million, compared to pretax income of $133.0 million in 2005. Again, excluding the items noted above, Alaska would have reported pretax income of $115.3 million for the quarter, compared to $106.0 million in the third quarter of 2005.

Horizon Air’s passenger traffic in the third quarter increased 5.7 percent on a 4.4 percent capacity increase. Horizon’s load factor increased by 0.9 percentage points to 75.9 percent, compared to the same period in 2005. Horizon’s operating revenue per ASM increased 9.9 percent, and its operating cost per ASM excluding fuel increased 8.4 percent. Horizon’s pretax income for the quarter was $5.9 million, compared to $17.3 million in 2005. Excluding the mark-to-market fuel hedge adjustments, Horizon’s pretax income would have been $15.1 million for the quarter, compared to $14.4 million in the third quarter of 2005.

Alaska Air Group had cash and short-term investments at September 30, 2006, of approximately $1.1 billion compared to $983 million at December 31, 2005. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 69 percent as of September 30, 2006, compared to 73 percent as of December 31, 2005. The decrease from December 31, 2005 is primarily due to the conversion to equity of our senior convertible notes in April 2006, offset by the $41.0 million net loss for the nine months and an increase in our outstanding debt resulting from new aircraft financings.

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 third quarter 2006 results will be simulcast via the Internet at 8:30 a.m. Pacific Time on October 24, 2006. It can be accessed through the company’s website at alaskaair.com. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com.

2

References in this report 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 report contains 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: the competitive environment and other trends in our industry; changes in our operating costs including fuel, which can be volatile; our ability to meet our cost reduction goals; our inability to achieve or maintain profitability and fluctuations in our quarterly results; our significant indebtedness; the implementation of our growth strategy; the timing of the MD-80 fleet disposal, and the amounts of potential lease termination payments with lessors and sublease payments from sub lessees; compliance with our financial covenants; potential downgrades of our credit ratings and the availability of financing; the concentration of our revenue from a few key markets; general economic conditions, as well as economic conditions in the geographic regions we serve; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; labor disputes; our ability to attract and retain qualified personnel; an aircraft accident or incident; liability and other claims asserted against us; operational disruptions; increases in government fees and taxes; changes in laws and regulations; our reliance on automated systems; and our reliance on third-party vendors and partners. For a discussion of these and other risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and Item 1A of the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2006. 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 press release to conform them to actual results.

# # #

Alaska Airlines and sister carrier, Horizon Air, together serve 88 cities through an expansive network throughout Alaska, the Lower 48, Canada and Mexico. For reservations visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air newsroom at http://newsroom.alaskaair.com.

3

ALASKA AIR GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(In Millions Except Per Share Amounts)

	Three Months Ended September 30						Nine Months Ended September 30
	2006			2005			2006			2005
Operating Revenues:
Passenger	$	871.5		$	777.4		$	2,358.4		$	2,061.9
Freight and mail		26.7			26.1			74.8			71.3
Other - net		37.5			42.2			110.9			111.5
Total Operating Revenues		935.7			845.7			2,544.1			2,244.7
Operating Expenses:
Wages and benefits		238.6			218.1			696.2			683.0
Variable incentive pay		5.0			3.4			24.1			10.5
Contracted services		37.6			30.8			114.3			96.2
Aircraft fuel, including hedging gains and losses		290.8			141.2			653.7			327.4
Aircraft maintenance		49.6			55.2			168.6			174.6
Aircraft rent		43.9			46.9			136.6			140.0
Food and beverage service		13.5			13.7			38.3			37.9
Selling expenses		44.7			45.9			132.6			123.8
Depreciation and amortization		40.5			36.3			114.1			105.8
Landing fees and other rentals		52.9			50.8			152.4			152.2
Other		55.6			51.7			160.4			155.6
Fleet transition costs		58.4			—			189.5			—
Restructuring charges and adjustments		28.6			(1.4	)		32.4			20.7
Total Operating Expenses		959.7			692.6			2,613.2			2,027.7
Operating Income (Loss)		(24.0	)		153.1			(69.1	)		217.0
Nonoperating Income (Expense):
Interest income		14.2			8.6			39.4			21.6
Interest expense		(20.4	)		(16.1	)		(57.6	)		(45.5	)
Interest capitalized		7.1			2.8			17.6			4.9
Other - net		0.2			(1.6	)		(1.5	)		(4.5	)
		1.1			(6.3	)		(2.1	)		(23.5	)
Income (loss) before income tax and accounting change		(22.9	)		146.8			(71.2	)		193.5
Income tax expense (benefit)		(5.5	)		56.6			(30.2	)		76.0
Income (loss) before accounting change	$	(17.4	)	$	90.2		$	(41.0	)	$	117.5
Cumulative effect of accounting change, net of tax		—			—			—			(90.4	)
Net Income (Loss)	$	(17.4	)	$	90.2		$	(41.0	)	$	27.1
Basic Earnings (Loss) Per Share:
Income (loss) before accounting change	$	(0.44	)	$	3.28		$	(1.10	)	$	4.31
Cumulative effect of accounting change		NA			NA			NA			(3.32	)
Net Income (Loss) Per Share	$	(0.44	)	$	3.28		$	(1.10	)	$	0.99
Diluted Earnings (Loss) Per Share:
Income (loss) before accounting change	$	(0.44	)	$	2.71		$	(1.10	)	$	3.62
Cumulative effect of accounting change		NA			NA			NA			(2.69	)
Net Income (Loss) Per Share	$	(0.44	)	$	2.71		$	(1.10	)	$	0.93
Shares Used for Computation:
Basic		39.954			27.502			37.172			27.274
Diluted		39.954			33.857			37.172			33.523

4

Alaska Air Group, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In Millions)	September 30, 2006		December 31, 2005
Cash and marketable securities	$	1,108	$	983
Total current assets	$	1,697	$	1,540
Property and equipment-net		2,251		2,032
Other assets		192		220
Total assets	$	4,140	$	3,792
Current liabilities	$	1,380	$	1,165
Long-term debt		946		969
Other liabilities and credits		849		830
Shareholders’ equity		965		828
Total liabilities and shareholders’ equity	$	4,140	$	3,792

5

Alaska Airlines Financial and Statistical Data

	Three Months Ended September 30								Nine Months Ended September 30
Financial Data (in millions):	2006			2005			% Change		2006			2005			% Change
Operating Revenues:
Passenger	$	698.4		$	624.1		11.9		$	1,882.5		$	1,656.6		13.6
Freight and mail		25.7			25.2		2.0			71.8			68.4		5.0
Other - net		35.8			40.0		(10.5	)		106.0			103.9		2.0
Total Operating Revenues		759.9			689.3		10.2			2,060.3			1,828.9		12.7
Operating Expenses:
Wages and benefits		190.3			171.7		10.8			552.9			548.7		0.8
Variable incentive pay		3.3			2.8		17.9			17.3			7.5		130.7
Contracted services		32.3			27.6		17.0			98.4			87.0		13.1
Aircraft fuel, including hedging gains and losses		251.5			121.8		106.5			567.2			283.6		100.0
Aircraft maintenance		32.4			43.2		(25.0	)		118.6			143.5		(17.4	)
Aircraft rent		26.4			29.5		(10.5	)		84.6			87.2		(3.0	)
Food and beverage service		12.6			13.0		(3.1	)		36.1			36.0		0.3
Selling expenses		36.8			35.6		3.4			110.0			102.2		7.6
Depreciation and amortization		35.2			31.9		10.3			99.6			92.9		7.2
Landing fees and other rentals		40.5			38.8		4.4			117.9			117.2		0.6
Other		40.8			39.6		3.0			118.4			118.9		(0.4	)
Fleet transition costs		58.4			—		NM			189.5			—		NM
Restructuring charges and adjustments		28.6			(1.4	)	NM			32.4			20.7		NM
Total Operating Expenses		789.1			554.1		42.4			2,142.9			1,645.4		30.2
Operating Income (Loss)		(29.2	)		135.2		NM			(82.6	)		183.5		NM
Interest income		14.6			9.2					41.2			23.1
Interest expense		(19.9	)		(13.0	)				(53.5	)		(36.9	)
Interest capitalized		6.1			2.6					15.5			4.5
Other - net		0.5			(1.0	)				(0.7	)		(3.7	)
		1.3			(2.2	)				2.5			(13.0	)
Income (Loss) Before Income Tax and Accounting Change	$	(27.9	)	$	133.0		NM		$	(80.1	)	$	170.5		NM
Operating Statistics:
Revenue passengers (000)		4,710			4,632		1.7			13,058			12,715		2.7
RPMs (000,000) “traffic”		4,873			4,598		6.0			13,579			12,812		6.0
ASMs (000,000) “capacity”		6,150			5,822		5.6			17,523			16,735		4.7
Passenger load factor		79.2	%		79.0	%	0.2pts			77.5	%		76.6	%	0.9pts
Yield per passenger mile		14.33	¢		13.57	¢	5.6			13.86	¢		12.93	¢	7.2
Operating revenue per ASM		12.36	¢		11.84	¢	4.4			11.76	¢		10.93	¢	7.6
Operating expenses per ASM (a)		12.83	¢		9.52	¢	34.8			12.23	¢		9.83	¢	24.4
Operating expense per ASM excluding fuel, fleet transition costs, and restructuring charges and adjustments(a)		7.33	¢		7.53	¢	(2.7	)		7.73	¢		8.04	¢	(3.9	)
GAAP fuel cost per gallon (a)	$	2.68		$	1.34		100.3		$	2.12		$	1.08		96.7
Economic fuel cost per gallon (a)	$	2.08		$	1.56		33.5		$	1.90		$	1.46		29.7
Fuel gallons (000,000)		93.9			90.4		3.9			267.2			260.8		2.5
Average number of full-time equivalent employees		9,467			8,961		5.6			9,267			9,108		1.7
Aircraft utilization (blk hrs/day)		11.4			10.9		4.6			11.1			10.8		2.8
Average aircraft stage length (miles)		920			887		3.7			921			895		2.9
Operating fleet at period-end		112			110		1.8			112			110		1.8

NM = Not Meaningful

(a) See Note A on page 8.

6

Horizon Air Financial and Statistical Data

	Three Months Ended September 30								Nine Months Ended September 30
Financial Data (in millions):	2006			2005			% Change		2006			2005			% Change
Operating Revenues:
Passenger	$	173.9		$	151.2		15.0		$	478.1		$	405.8		17.8
Freight and mail		1.0			1.0		0.0			3.0			2.9		3.4
Other - net		1.4			1.5		(6.7	)		4.1			6.8		(39.7	)
Total Operating Revenues		176.3			153.7		14.7			485.2			415.5		16.8
Operating Expenses:
Wages and benefits		47.3			44.7		5.8			140.3			128.6		9.1
Variable incentive pay		1.7			0.6		183.3			6.8			3.0		126.7
Contracted services		6.7			6.1		9.8			20.1			17.7		13.6
Aircraft fuel, including hedging gains and losses		39.3			19.4		102.6			86.5			43.8		97.5
Aircraft maintenance		17.2			11.9		44.5			50.0			31.1		60.8
Aircraft rent		17.5			17.5		0.0			52.0			52.8		(1.5	)
Food and beverage service		0.9			0.7		28.6			2.2			1.9		15.8
Selling expenses		8.8			8.1		8.6			25.2			22.1		14.0
Depreciation and amortization		4.9			4.1		19.5			13.6			12.0		13.3
Landing fees and other rentals		12.7			12.2		4.1			35.3			35.7		(1.1	)
Other		13.6			10.1		34.7			37.0			31.0		19.4
Total Operating Expenses		170.6			135.4		26.0			469.0			379.7		23.5
Operating Income		5.7			18.3		NM			16.2			35.8		NM
Interest income		1.0			0.3					2.7			1.0
Interest expense		(1.8	)		(1.6	)				(5.8	)		(4.3	)
Interest capitalized		1.0			0.2					2.1			0.4
Other - net		—			0.1					—			0.1
		0.2			(1.0	)				(1.0	)		(2.8	)
Income Before Income Tax and Accounting Change	$	5.9		$	17.3		NM		$	15.2		$	33.0		NM
Operating Statistics:
Revenue passengers (000)		1,832			1,755		4.4			5,171			4,868		6.2
RPMs (000,000) “traffic”		722			683		5.7			2,032			1,843		10.3
ASMs (000,000) “capacity”		951			911		4.4			2,729			2,542		7.4
Passenger load factor		75.9	%		75.0	%	0.9pts			74.5	%		72.5	%	2.0pts
Yield per passenger mile		24.09	¢		22.14	¢	8.8			23.53	¢		22.02	¢	6.9
Operating revenue per ASM		18.54	¢		16.87	¢	9.9			17.78	¢		16.35	¢	8.8
Operating expenses per ASM (a)		17.94	¢		14.86	¢	20.7			17.19	¢		14.94	¢	15.1
Operating expense per ASM excluding fuel (a)		13.81	¢		12.73	¢	8.4			14.02	¢		13.21	¢	6.1
GAAP fuel cost per gallon (a)	$	2.71		$	1.41		92.8		$	2.13		$	1.13		88.6
Economic fuel cost per gallon (a)	$	2.08		$	1.62		28.3		$	1.92		$	1.54		24.8
Fuel gallons (000,000)		14.5			13.7		5.8			40.6			38.6		5.2
Average number of full-time equivalent employees		3,706			3,508		5.6			3,592			3,428		4.8
Aircraft utilization (blk hrs/day)		8.8			9.0		(2.2	)		8.8			8.6		2.3
Operating fleet at period-end		69			65		6.2			69			65		6.2

NM = Not Meaningful

(a) See Note A on page 8.

7

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), fleet transition costs, and restructuring charges and adjustments. 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 fleet transition costs, restructuring charges, and the navigation fee refund is useful to investors. 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.:

($ in millions)

	Three Months Ended September 30,						Nine Months Ended September 30
	2006			2005			2006			2005
Unit cost reconciliations:
Operating expenses	$	789.1		$	554.1		$	2,142.9		$	1,645.4
ASMs (000,000)		6,150			5,822			17,523			16,735
Operating expenses per ASM		12.83	¢		9.52	¢		12.23	¢		9.83	¢
Operating expenses	$	789.1		$	554.1		$	2,142.9		$	1,645.4
Less: aircraft fuel		(251.5	)		(121.8	)		(567.2	)		(283.6	)
Less: fleet transition costs		(58.4	)		—			(189.5	)		—
Add: navigation fee refund		—			4.7			—			4.7
Less: restructuring charges and adjustments		(28.6	)		1.4			(32.4	)		(20.7	)
Operating expenses excluding fuel, fleet transition costs, the navigation fee refund, and restructuring charges and adjustments	$	450.6		$	438.4		$	1,353.8		$	1,345.8
ASMs (000,000)		6,150			5,822			17,523			16,735
Operating expenses per ASM excluding fuel, fleet transition costs, the navigation fee refund, and restructuring charges and adjustments		7.33	¢		7.53	¢		7.73	¢		8.04	¢
Reconciliation to GAAP income (loss) before taxes and accounting change:
Income (loss) before taxes and accounting change, excluding mark-to-market hedging gains (losses), fleet transition costs, the navigation fee refund, and restructuring charges and adjustments	$	115.3		$	106.0		$	202.5		$	85.3
Mark-to-market hedging gains (losses) included in aircraft fuel		(56.2	)		19.9			(60.7	)		100.2
Less: fleet transition costs		(58.4	)		—			(189.5	)		—
Add: navigation fee refund and related interest received		—			5.7			—			5.7
Less: restructuring charges and adjustments		(28.6	)		1.4			(32.4	)		(20.7	)
GAAP income (loss) before taxes and accounting change as reported	$	(27.9	)	$	133.0		$	(80.1	)	$	170.5
Aircraft fuel reconciliations:* ($ in millions except per gallon amounts)
	Three Months Ended September 30,
	2006						2005
				Cost/Gal						Cost/Gal
Raw or “into-plane” fuel cost	$	218.9		$	2.33		$	179.5		$	1.99
Less: gains on settled hedges		(23.6	)		(0.25	)		(37.8	)		(0.43	)
Economic fuel expense*	$	195.3		$	2.08		$	141.7		$	1.56
Less: mark-to-market gains and losses related to hedges that settle in future periods and the reclassification of previously recorded mark-to-market gains on settled hedges		56.2			0.60			(19.9	)		(0.22	)
GAAP fuel expense*	$	251.5		$	2.68		$	121.8		$	1.34
Fuel gallons (000,000)		93.9						90.4
	Nine Months Ended September 30,
	2006						2005
				Cost/Gal						Cost/Gal
Raw or “into-plane” fuel cost	$	585.5		$	2.19		$	465.2		$	1.78
Less: gains on settled hedges		(79.0	)		(0.29	)		(81.4	)		(0.32	)
Economic fuel expense*	$	506.5		$	1.90		$	383.8		$	1.46
Less: mark-to-market gains and losses related to hedges that settle in future periods and the reclassification of previously recorded mark-to-market gains on settled hedges		60.7			0.22			(100.2	)		(0.38	)
GAAP fuel expense*	$	567.2		$	2.12		$	283.6		$	1.08
Fuel gallons (000,000)		267.2						260.8

* Beginning in the first quarter of 2006, the Company records all fuel hedging activity, including mark-to-market gains and losses, in aircraft fuel expense. Prior year amounts have been reclassified for consistency.

8

Horizon Air Industries, Inc. ($ in millions)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Unit cost reconciliations:
Operating expenses	$	170.6		$	135.4		$	469.0		$	379.7
ASMs (000,000)		951			911			2,729			2,542
Operating expenses per ASM		17.94	¢		14.86	¢		17.19	¢		14.94	¢
Operating expenses	$	170.6		$	135.4		$	469.0		$	379.7
Less: aircraft fuel		(39.3	)		(19.4	)		(86.5	)		(43.8	)
Operating expenses excluding fuel	$	131.3		$	116.0		$	382.5		$	335.9
ASMs (000,000)		951			911			2,729			2,542
Operating expenses per ASM excluding fuel		13.81	¢		12.73	¢		14.02	¢		13.21	¢
Reconciliation to GAAP income before taxes and accounting change:
Income before taxes and accounting change, excluding mark-to-market hedging gains (losses)	$	15.1		$	14.4		$	23.7		$	17.4
Mark-to-market hedging gains (losses) included in aircraft fuel		(9.2	)		2.9			(8.5	)		15.6
GAAP income before taxes and accounting change as reported	$	5.9		$	17.3		$	15.2		$	33.0
Aircraft fuel reconciliations:* ($ in millions except per gallon amounts)
	Three Months Ended September 30,
	2006						2005
				Cost/Gal						Cost/Gal
Raw or “into-plane” fuel cost	$	33.9		$	2.34		$	28.0		$	2.04
Less: gains on settled hedges		(3.8	)		(0.26	)		(5.7	)		(0.42	)
Economic fuel expense*	$	30.1		$	2.08		$	22.3		$	1.62
Less: mark-to-market gains and losses related to hedges that settle in future periods and the reclassification of previously recorded mark-to-market gains on settled hedges		9.2			0.63			(2.9	)		(0.21	)
GAAP fuel expense*	$	39.3		$	2.71		$	19.4		$	1.41
Fuel gallons (000,000)		14.5						13.7
	Nine Months Ended September 30,
	2006						2005
				Cost/Gal						Cost/Gal
Raw or “into-plane” fuel cost	$	90.8		$	2.24		$	71.6		$	1.85
Less: gains on settled hedges		(12.8	)		(0.32	)		(12.2	)		(0.31	)
Economic fuel expense*	$	78.0		$	1.92		$	59.4		$	1.54
Less: mark-to-market gains and losses related to hedges that settle in future periods and the reclassification of previously recorded mark-to-market gains on settled hedges		8.5			0.21			(15.6	)		(0.41	)
GAAP fuel expense*	$	86.5		$	2.13		$	43.8		$	1.13
Fuel gallons (000,000)		40.6						38.6

* Beginning in the first quarter of 2006, the Company records all fuel hedging activity, including mark-to-market gains and losses, in aircraft fuel expense. Prior year amounts have been reclassified for consistency.

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Air Group Net Income (Loss) and EPS Reconciliation:

The following table summarizes Alaska Air Group, Inc.’s net income (loss) and earnings (loss) per share during 2006 and 2005 excluding the cumulative effect of the accounting change, mark-to-market hedging gains (losses) and related reclassifications, fleet transition costs, the navigation refund, and restructuring charges and adjustments, as reported in accordance with GAAP (in millions except per share amounts):

	Three Months Ended September 30,
	2006**						2005
	Dollars			Diluted EPS			Dollars			Diluted EPS
Net income and diluted EPS excluding mark-to-market hedging gains (losses), fleet transition costs, the navigation fee refund, and restructuring charges and adjustments *	$	77.9		$	1.93		$	71.5		$	2.16
Effect of dilutive shares*		NA			0.02			NA			NA
Mark-to-market hedging gains (losses), net of tax		(40.9	)		(1.03	)		14.2			0.42
Fleet transition costs, net of tax		(36.5	)		(0.91	)		—			—
Restructuring charges and adjustments, net of tax		(17.9	)		(0.45	)		0.9			0.02
Navigation fee refund, net of tax		—			—			3.6			0.11
Reported GAAP amounts	$	(17.4	)	$	(0.44	)	$	90.2		$	2.71
	Nine Months Ended September 30,
	2006**						2005
	Dollars			Diluted EPS			Dollars			Diluted EPS
Net income and diluted EPS excluding the cumulative effect of the accounting change, mark-to-market hedging gains (losses), fleet transition costs, the navigation fee refund, and restructuring charges and adjustments *	$	141.1		$	3.56		$	54.4		$	1.74
Effect of dilutive shares and interest on convertible bonds *		NA			0.24			NA			NA
Cumulative effect of accounting change, net of tax		—			—			(90.4	)		(2.69	)
Mark-to-market hedging gains (losses), net of tax		(43.3	)		(1.16	)		72.4			2.16
Fleet transition costs, net of tax		(118.5	)		(3.19	)		—			—
Restructuring charges and adjustments, net of tax		(20.3	)		(0.55	)		(12.9	)		(0.39	)
Navigation fee refund, net of tax		—			—			3.6			0.11
Reported GAAP amounts	$	(41.0	)	$	(1.10	)	$	27.1		$	0.93

* Diluted earnings per share for the three and nine months ended September 30, 2006, excluding the impact of the mark-to-market losses on fuel hedges, fleet transition costs, and restructuring charges and adjustments has been calculated using the dilutive weighted average number of shares outstanding of 40.4 million and 40.0 million, respectively.

In order to reconcile the diluted earnings per share on an adjusted basis to the GAAP loss per share for the three and nine months ended September 30, 2006, the table above includes $0.02 per share and $0.24 per share, respectively, which represents the impact of the additional shares that were used in the adjusted diluted earnings per share. Additionally, $1.6 million of interest, net of tax, on the convertible senior notes that were outstanding during the first quarter of the year was added back to earnings for the three months ended September 30, 2006 in order to derive the diluted earnings per share on an adjusted basis.

The per share impact of the mark-to-market losses on fuel hedges, fleet transition costs, and restructuring and impairment charges have been presented in the table above using the basic shares outstanding of 40.0 million and 37.2 million fully diluted shares outstanding for the three months and nine months ended September 30, 2006, respectively.

** The tax rate used on all of the adjusting items for 2006 was our composite tax rate of 37.5%, yielding an effective tax rate on our adjusted net income amounts of 39.8% and 35.8 % for the three and nine months ended September 30, 2006, respectively.

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006			2005		2006			2005
Basic Earnings (Loss) Per Share:
Income (loss) before accounting change	$	(17.4	)	$	90.2	$	(41.0	)	$	117.5
Weighted average shares outstanding		39.954			27.502		37.172			27.274
Income (loss) per share before accounting change	$	(0.44	)	$	3.28	$	(1.10	)	$	4.31
Cumulative effect of accounting change, net of tax		NA			NA		NA		$	(90.4	)
Weighted average shares outstanding		NA			NA		NA			27.274
Per share cumulative effect of accounting change		NA			NA		NA		$	(3.32	)
Net income (loss)	$	(17.4	)	$	90.2	$	(41.0	)	$	27.1
Weighted average shares outstanding		39.954			27.502		37.172			27.274
Net income (loss) per share	$	(0.44	)	$	3.28	$	(1.10	)	$	0.99
Diluted Earnings (Loss) Per Share:
Income (loss) before accounting change	$	(17.4	)	$	90.2	$	(41.0	)	$	117.5
Interest on convertible notes, net of tax		NA			1.5		NA			4.0
Income (loss) before accounting change for diluted calculation	$	(17.4	)	$	91.7	$	(41.0	)	$	121.5
Weighted average shares outstanding		39.954			33.857		37.172			33.523
Income (loss) per share before accounting change	$	(0.44	)	$	2.71	$	(1.10	)	$	3.62
Cumulative effect of accounting change, net of tax		NA			NA		NA		$	(90.4	)
Weighted average shares outstanding		NA			NA		NA			33.523
Per share cumulative effect of accounting change		NA			NA		NA		$	(2.69	)
Net income (loss)	$	(17.4	)	$	90.2	$	(41.0	)	$	27.1
Interest on convertible notes, net of tax		NA			1.5		NA			4.0
Net income (loss) for diluted calculation	$	(17.4	)	$	91.7	$	(41.0	)	$	31.1
Weighted average shares outstanding		39.954			33.857		37.172			33.523
Net income (loss) per share	$	(0.44	)	$	2.71	$	(1.10	)	$	0.93

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Forecasted Financial Measures

During our quarterly earnings conference call, we expect to discuss forward-looking forecasted unit cost information for the remainder of 2006. This forecasted unit cost information includes non-GAAP unit cost estimates which are summarized in the following table together with the most directly comparable GAAP unit cost for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:

	Alaska Airlines					Horizon Air
	Forecast of cost per available seat mile, excluding fuel and impairment charges (cents)	Forecast of fuel cost per available seat mile (cents) (See Note 1)	Forecast of fleet transition costs per available seat mile (cents)	Forecast of restructuring charges per available seat mile (cents)	Forecast of total operating cost per available seat mile, as reported on a GAAP basis (cents)	Forecast of cost per available seat mile, excluding fuel (cents)	Forecast of fuel cost per available seat mile (See Note 1)	Forecast of total operating cost per available seat mile, as reported on a GAAP basis (cents)
Fourth quarter 2006	7.9	3.2	—	—	11.1	14.7	3.3	18.0
Full year 2006	7.8	3.2	0.8	0.1	11.9	14.2	3.4	17.6

Note 1: Our forecast of fuel cost is based on anticipated gallons consumed and estimated fuel cost per gallon. The estimate also includes the expected benefit from settled hedges, net of the reclassification of previously recognized mark-to-market hedge portfolio gains and losses. Given the volatility of fuel prices and the mark-to-market adjustments on our fuel hedge portfolio, readers should be cautioned that actual fuel expense could differ significantly from the forecast above.

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