----

----

|   | x         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES      EXCHANGE ACT OF 1934 |
|--------|-----------------------------------------------------------------------------------------------------------------------|

|                                                                    |                                          |
|-------------------------------------------------------------------------|-----------------------------------------------|
| Alaska                                                                  | 92-0009235                                    |
| (State      or other jurisdiction ofincorporation      or organization) | (I.R.S.      EmployerIdentification      No.) |

| Large      accelerated filer  ¨ | Accelerated      filer  ¨         |
|------------------------------------------------|--------------------------------------------------|
| Non-accelerated      filer  x        | Smaller      reporting company  ¨ |

----

TABLE OF CONTENTS

| PART I.   FINANCIAL      INFORMATION | 4        |
|-----------------------------------------------------|----------|
|                                                | ITEM 1.  | CONDENSED FINANCIAL STATEMENTS | 4 |
|                                                | ITEM 2.  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION      AND RESULTS OF OPERATIONS | 20 |
|                                                | ITEM 4.  | CONTROLS AND PROCEDURES | 30 |
| PART II.  OTHER INFORMATION               | 31       |
|                                                | ITEM 1.  | LEGAL PROCEEDINGS | 31 |
|                                                | ITEM 1A. | RISK FACTORS | 31 |
|                                                | ITEM 5.  | OTHER INFORMATION | 32 |
|                                                | ITEM 6.  | EXHIBITS | 32 |
| SIGNATURES                                          |     | 32 |
| EXHIBIT INDEX                                       |     | 33 |

----

Table of Contents

|   | · | general      economic conditions, including the impact of the current economic      environment on customer travelbehavior; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | our      ability to meet our cost reductiongoals; |
|--------|--------|---------------------------------------------------|

|   | · | our      significant indebtedness; |
|--------|--------|------------------------------------|

|   | · | an      aircraft accident or incident; |
|--------|--------|----------------------------------------|

|   | · | our      ability to achieve or maintainprofitability; |
|--------|--------|-------------------------------------------------------|

|   | · | labor      disputes and our ability to attract and retain qualified      personnel; |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | potential      downgrades of our credit ratings and the availability of      financing; |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | operational      disruptions; |
|--------|--------|-------------------------------|

|   | · | the      concentration of our revenue from a few key  markets; |
|--------|--------|----------------------------------------------------------------|

|   | · | actual      or threatened terrorist attacks, global instability and potential U.S.      military actions or activities; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | insurance      costs; |
|--------|--------|-----------------------|

|   | · | fluctuations      in our quarterly results; |
|--------|--------|---------------------------------------------|

|   | · | liability      and other claims asserted againstus; |
|--------|--------|-----------------------------------------------------|

|   | · | our      reliance on automated systems and the risks associated with changes made      to those systems; |
|--------|--------|----------------------------------------------------------------------------------------------------------|

|   | · | our      reliance on third-party vendors andpartners; |
|--------|--------|-------------------------------------------------------|

|   | · | compliance      with our financial covenants; |
|--------|--------|-----------------------------------------------|

|   | · | changes      in laws and regulations; and |
|--------|--------|-------------------------------------------|

|   | · | increases      in government fees and taxes. |
|--------|--------|----------------------------------------------|

----

Table of Contents

| PART I. FINANCIAL INFORMATION                                  |   |                    |    |   |                   |   |
|----------------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| ITEM 1.  CONDENSED FINANCIAL      STATEMENTS         |   |                    |    |   |                   |   |
|                                                           |   |                    |    |   |                   |   |
| CONDENSED      BALANCE SHEETS (unaudited)                      |   |                    |    |   |                   |   |
| Alaska      Airlines, Inc.                                     |   |                    |    |   |                   |   |
|                                                           |   |                    |    |   |                   |   |
| ASSETS                                                         |   |                    |    |   |                   |   |
| (in      millions)                                             |   | September      30, 2009 |    |   | December      31, 2008 |   |
| Current      Assets                                            |   |                    |    |   |                   |   |
| Cash      and cash equivalents                                 |   | $                       | 169.9   |   |                   | $      | 283.0 |   |
| Marketable      securities                                     |   |                    | 1,059.6 |   |                   |   | 794.3 |   |
|   Total      cash and marketable securities          |   |                    | 1,229.5 |   |                   |   | 1,077.3 |   |
| Receivables      from related companies                        |   |                    | 302.9   |   |                   |   | 285.9 |   |
| Receivables      - net                                         |   |                    | 126.4   |   |                   |   | 98.9 |   |
| Inventories      and supplies - net                            |   |                    | 27.3    |   |                   |   | 26.7 |   |
| Deferred      income taxes                                     |   |                    | 121.9   |   |                   |   | 146.7 |   |
| Fuel      hedge contracts                                      |   |                    | 36.2    |   |                   |   | 13.7 |   |
| Prepaid      expenses and other current assets                 |   |                    | 47.4    |   |                   |   | 30.1 |   |
| Total      Current Assets                                      |   |                    | 1,891.6 |   |                   |   | 1,679.3 |   |
|                                                           |   |                    |    |   |                   |   |   |   |
| Property      and Equipment                                    |   |                    |    |   |                   |   |   |   |
| Aircraft      and other flight equipment                       |   |                    | 3,032.2 |   |                   |   | 2,898.5 |   |
| Other      property and equipment                              |   |                    | 529.4   |   |                   |   | 519.8 |   |
| Deposits      for future flight equipment                      |   |                    | 138.4   |   |                   |   | 237.6 |   |
|                                                           |   |                    | 3,700.0 |   |                   |   | 3,655.9 |   |
| Less      accumulated depreciation and amortization            |   |                    | 1,092.0 |   |                   |   | 1,009.8 |   |
|                                                           |   |                    |    |   |                   |   |   |   |
| Total      Property and Equipment - Net                        |   |                    | 2,608.0 |   |                   |   | 2,646.1 |   |
|                                                           |   |                    |    |   |                   |   |   |   |
| Fuel      Hedge Contracts                                      |   |                    | 29.3    |   |                   |   | 29.8 |   |
|                                                           |   |                    |    |   |                   |   |   |   |
| Other      Assets                                              |   |                    | 76.7    |   |                   |   | 73.4 |   |
|                                                           |   |                    |    |   |                   |   |   |   |
| Total      Assets                                              |   | $                       | 4,605.6 |   |                   | $      | 4,428.6 |   |
|                                                           |   |                    |    |   |                   |   |   |   |
| See      accompanying notes to condensed financial statements. |   |                    |    |   |                   |   |   |   |

----

Table of Contents

| CONDENSED      BALANCE SHEETS (unaudited)                                    |   |                    |    |   |                   |   |
|------------------------------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| Alaska      Airlines, Inc.                                                   |   |                    |    |   |                   |   |
|                                                                         |   |                    |    |   |                   |   |
| LIABILITIES      AND SHAREHOLDER'S EQUITY                                    |   |                    |    |   |                   |   |
|                                                                         |   |                    |    |   |                   |   |
| (in      millions except share amounts)                                      |   | September      30, 2009 |    |   | December      31, 2008 |   |
| Current      Liabilities                                                     |   |                    |    |   |                   |   |
| Accounts      payable                                                        |   | $                       | 45.3    |   |                   | $      | 49.4 |   |
| Payables      to related companies                                           |   |                    | 65.9    |   |                   |   | 53.5 |   |
| Accrued      aircraft rent                                                   |   |                    | 52.7    |   |                   |   | 60.2 |   |
| Accrued      wages, vacation and payroll taxes                               |   |                    | 117.3   |   |                   |   | 101.2 |   |
| Other      accrued liabilities                                               |   |                    | 515.2   |   |                   |   | 510.7 |   |
| Air      traffic liability                                                   |   |                    | 396.6   |   |                   |   | 372.2 |   |
| Fuel      hedge contracts liability                                          |   |                    | 1.4     |   |                   |   | 20.0 |   |
| Current      portion of long-term debt                                       |   |                    | 126.3   |   |                   |   | 225.1 |   |
| Total      Current Liabilities                                               |   |                    | 1,320.7 |   |                   |   | 1,392.3 |   |
|                                                                         |   |                    |    |   |                   |   |   |   |
| Long-Term      Debt, Net of Current Portion                                  |   |                    | 1,383.3 |   |                   |   | 1,334.1 |   |
|                                                                         |   |                    |    |   |                   |   |   |   |
| Other      Liabilities and Credits                                           |   |                    |    |   |                   |   |   |   |
| Deferred      income taxes                                                   |   |                    | 52.0    |   |                   |   | 2.0 |   |
| Deferred      revenue                                                        |   |                    | 426.2   |   |                   |   | 394.1 |   |
| Obligation      for pension and postretirement medical benefits              |   |                    | 582.7   |   |                   |   | 584.7 |   |
| Other      liabilities                                                       |   |                    | 121.3   |   |                   |   | 126.4 |   |
|                                                                         |   |                    | 1,182.2 |   |                   |   | 1,107.2 |   |
| Commitments      and Contingencies                                           |   |                    |    |   |                   |   |   |   |
| Shareholder's      Equity                                                    |   |                    |    |   |                   |   |   |   |
| Common      stock, $1 par value                                              |   |                    |    |   |                   |   |   |   |
|   Authorized:      1,000      shares |   |                    |    |   |                   |   |   |   |
|   Issued:  2009      and 2008 - 500 shares               |   |                    | -       |   |                   |   | - |   |
|   Capital      in excess of par value                              |   |                    | 648.2   |   |                   |   | 640.1 |   |
| Accumulated      other comprehensive loss                                    |   |                    | (303.0  | )      |                   |   | (328.3 | ) |
| Retained      earnings                                                       |   |                    | 374.2   |   |                   |   | 283.2 |   |
|                                                                         |   |                    | 719.4   |   |                   |   | 595.0 |   |
| Total      Liabilities and Shareholder's Equity                              |   | $                       | 4,605.6 |   |                   | $      | 4,428.6 |   |
|                                                                         |   |                    |    |   |                   |   |   |   |
| See      accompanying notes to condensed financial statements.               |   |                    |    |   |                   |   |   |   |

----

Table of Contents

| CONDENSED      STATEMENTS OF OPERATIONS (unaudited)            |   |                                 |   |   |                                |   |    |   |   |   |
|----------------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|---------|--------|--------|--------|
| Alaska      Airlines, Inc.                                     |   |                                 |   |   |                                |   |    |   |   |   |   |   |
|                                                           |   |                                 |   |   |                                |   |    |   |   |   |   |   |
|                                                           |   | Three      Months Ended September 30 |   |   | Nine      Months Ended September 30 |   |
| (in      millions)                                             |   | 2009                                 |   |   | 2008                                |   |    | 2009   |   |   | 2008 |   |
| Operating      Revenues                                        |   |                                 |   |   |                                |   |    |   |   |   |   |   |
| Passenger                                                      |   | $                                    | 702.0  |   |                                | $      | 751.2   |   |   | $      | 1,844.3 |   |   | $ | 2,041.2 |   |
| Freight      and mail                                          |   |                                 | 26.5   |   |                                |   | 29.2    |   |   |   | 69.0 |   |   |   | 77.1 |   |
| Other      - net                                               |   |                                 | 48.4   |   |                                |   | 33.5    |   |   |   | 136.5 |   |   |   | 101.2 |   |
| Change      in Mileage Plan terms                              |   |                                 | -      |   |                                |   | 42.3    |   |   |   | - |   |   |   | 42.3 |   |
| Total      mainline operating revenues                         |   |                                 | 776.9  |   |                                |   | 856.2   |   |   |   | 2,049.8 |   |   |   | 2,261.8 |   |
| Passenger      - purchased capacity                            |   |                                 | 81.9   |   |                                |   | 85.7    |   |   |   | 211.4 |   |   |   | 233.9 |   |
| Total      Operating Revenues                                  |   |                                 | 858.8  |   |                                |   | 941.9   |   |   |   | 2,261.2 |   |   |   | 2,495.7 |   |
|                                                           |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |   |   |   |
| Operating      Expenses                                        |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |   |   |   |
| Wages      and benefits                                        |   |                                 | 199.1  |   |                                |   | 182.5   |   |   |   | 594.9 |   |   |   | 558.9 |   |
| Variable      incentive pay                                    |   |                                 | 20.8   |   |                                |   | 4.9     |   |   |   | 44.0 |   |   |   | 10.8 |   |
| Aircraft      fuel, including hedging gains and losses         |   |                                 | 166.6  |   |                                |   | 479.1   |   |   |   | 405.9 |   |   |   | 864.0 |   |
| Aircraft      maintenance                                      |   |                                 | 36.5   |   |                                |   | 32.6    |   |   |   | 129.4 |   |   |   | 112.1 |   |
| Aircraft      rent                                             |   |                                 | 27.2   |   |                                |   | 26.3    |   |   |   | 81.8 |   |   |   | 82.4 |   |
| Landing      fees and other rentals                            |   |                                 | 43.0   |   |                                |   | 42.3    |   |   |   | 124.4 |   |   |   | 126.9 |   |
| Contracted      services                                       |   |                                 | 29.7   |   |                                |   | 31.9    |   |   |   | 88.6 |   |   |   | 100.5 |   |
| Selling      expenses                                          |   |                                 | 29.4   |   |                                |   | 33.1    |   |   |   | 76.8 |   |   |   | 95.6 |   |
| Depreciation      and amortization                             |   |                                 | 45.1   |   |                                |   | 42.8    |   |   |   | 132.6 |   |   |   | 123.2 |   |
| Food      and beverage service                                 |   |                                 | 12.0   |   |                                |   | 12.8    |   |   |   | 34.9 |   |   |   | 37.1 |   |
| Other                                                          |   |                                 | 38.0   |   |                                |   | 41.0    |   |   |   | 119.3 |   |   |   | 130.2 |   |
| New      pilot contract transition costs                       |   |                                 | -      |   |                                |   | -       |   |   |   | 35.8 |   |   |   | - |   |
| Restructuring      charges                                     |   |                                 | -      |   |                                |   | 3.7     |   |   |   | - |   |   |   | 3.7 |   |
| Fleet      transition costs - MD-80                            |   |                                 | -      |   |                                |   | 21.5    |   |   |   | - |   |   |   | 47.5 |   |
| Total      mainline operating expenses                         |   |                                 | 647.4  |   |                                |   | 954.5   |   |   |   | 1,868.4 |   |   |   | 2,292.9 |   |
| Purchased      capacity costs                                  |   |                                 | 74.7   |   |                                |   | 85.6    |   |   |   | 206.3 |   |   |   | 246.8 |   |
| Total      Operating Expenses                                  |   |                                 | 722.1  |   |                                |   | 1,040.1 |   |   |   | 2,074.7 |   |   |   | 2,539.7 |   |
|                                                           |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |   |   |   |
| Operating      Income (Loss)                                   |   |                                 | 136.7  |   |                                |   | (98.2   | )      |   |   | 186.5 |   |   |   | (44.0 | ) |
|                                                           |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |   |   |   |
| Nonoperating      Income (Expense)                             |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |   |   |   |
| Interest      income                                           |   |                                 | 9.6    |   |                                |   | 12.8    |   |   |   | 29.2 |   |   |   | 38.2 |   |
| Interest      expense                                          |   |                                 | (22.4  | )      |                                |   | (23.5   | )      |   |   | (67.5 | ) |   |   | (67.5 | ) |
| Interest      capitalized                                      |   |                                 | 1.4    |   |                                |   | 4.8     |   |   |   | 5.7 |   |   |   | 16.1 |   |
| Other      - net                                               |   |                                 | (0.5   | )      |                                |   | (3.3    | )      |   |   | (5.3 | ) |   |   | (2.7 | ) |
|                                                           |   |                                 | (11.9  | )      |                                |   | (9.2    | )      |   |   | (37.9 | ) |   |   | (15.9 | ) |
| Income      (loss) before income tax                           |   |                                 | 124.8  |   |                                |   | (107.4  | )      |   |   | 148.6 |   |   |   | (59.9 | ) |
| Income      tax expense (benefit)                              |   |                                 | 47.5   |   |                                |   | (38.1   | )      |   |   | 57.6 |   |   |   | (21.2 | ) |
|                                                           |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |   |   |   |
| Net      Income (Loss)                                         |   | $                                    | 77.3   |   |                                | $      | (69.3   | )      |   | $      | 91.0 |   |   | $ | (38.7 | ) |
|                                                           |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to condensed financial statements. |   |                                 |   |   |                                |   |    |   |   |   |   |   |   |

----

Table of Contents

| CONDENSED      STATEMENTS OF SHAREHOLDER'S EQUITY (unaudited)  |   |              |   |   |                     |   |   |                    |   |   |
|----------------------------------------------------------------|--------|-------------------|--------|--------|--------------------------|--------|--------|-------------------------|--------|--------|
| Alaska      Airlines, Inc.                                     |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |
|                                                           |   |              |   |   | Capital      in          |   |   | Accumulated Other       |   |   |   |   |   |   |   |
| (in      millions)                                             |   | Common      Stock |   |   | Excess      of Par Value |   |   | Comprehensive      Loss |   |   | Retained      Earnings |   |   | Total |   |
| Balances      at December 31, 2008                             |   | $                 | 0.0    |   |                     | $      | 640.1  |                    |   | $      | (328.3 | ) |   | $ | 283.2 |   |   | $ | 595.0 |   |
| Net      income for the nine months ended September 30, 2009   |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   | 91.0 |   |   |   | 91.0 |   |
| Other      comprehensive income (loss):                        |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Related      to marketable securities:                         |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
|   Change      in fair value                          |   |              |   |   |                     |   |   |                    |   |   | 22.3 |   |   |   |   |   |   |   |   |   |
|   Reclassification      to earnings                  |   |              |   |   |                     |   |   |                    |   |   | (1.2 | ) |   |   |   |   |   |   |   |   |
|   Income      tax effect                             |   |              |   |   |                     |   |   |                    |   |   | (7.9 | ) |   |   |   |   |   |   |   |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   | 13.2 |   |   |   |   |   |   |   | 13.2 |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjustments      related to employee benefit plans:            |   |              |   |   |                     |   |   |                    |   |   | 25.6 |   |   |   |   |   |   |   |   |   |
|    Income      tax effect                       |   |              |   |   |                     |   |   |                    |   |   | (9.6 | ) |   |   |   |   |   |   |   |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   | 16.0 |   |   |   |   |   |   |   | 16.0 |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Related      to interest rate derivative instruments:          |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
|   Change      in fair value                          |   |              |   |   |                     |   |   |                    |   |   | (6.2 | ) |   |   |   |   |   |   |   |   |
|   Income      tax effect                             |   |              |   |   |                     |   |   |                    |   |   | 2.3 |   |   |   |   |   |   |   |   |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   | (3.9 | ) |   |   |   |   |   |   | (3.9 | ) |
| Total      comprehensive income                                |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   | 116.3 |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Impact      of issuance of Air Group stock under stock plans   |   |              |   |   |                     |   | (0.6   | )                       |   |   |   |   |   |   |   |   |   |   | (0.6 | ) |
| Stock-based      compensation                                  |   |              |   |   |                     |   | 8.7    |                    |   |   |   |   |   |   |   |   |   |   | 8.7 |   |
| Balances      at September 30, 2009                            |   | $                 | 0.0    |   |                     | $      | 648.2  |                    |   | $      | (303.0 | ) |   | $ | 374.2 |   |   | $ | 719.4 |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to condensed financial statements. |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |              |   |   |                     |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

| CONDENSED      STATEMENTS OF CASH FLOWS (unaudited)                                                                                   |   |                                |   |   |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|--------|--------|
| Alaska      Airlines, Inc.                                                                                                            |   |                                |   |   |   |   |
|                                                                                                                                  |   | Nine      Months Ended September 30 |   |
| (in      millions)                                                                                                                    |   | 2009                                |   |   | 2008   |   |
| Cash      flows from operating activities:                                                                                            |   |                                |   |   |   |   |
| Net      income (loss)                                                                                                                |   | $                                   | 91.0   |   |   | $      | (38.7 | ) |
| Adjustments      to reconcile net income (loss) to net cash                                                                           |   |                                |   |   |   |   |   |   |
|  provided      by operating activities:                                                                                          |   |                                |   |   |   |   |   |   |
|       Non-cash      impact of pilot contract transition costs                                           |   |                                | 15.5   |   |   |   | - |   |
|       Restructuring      charges                                                                        |   |                                | -      |   |   |   | 3.7 |   |
|       Fleet      transition costs                                                                       |   |                                | -      |   |   |   | 47.5 |   |
|       Depreciation      and amortization                                                                |   |                                | 132.6  |   |   |   | 123.2 |   |
|       Stock-based      compensation                                                                     |   |                                | 8.7    |   |   |   | 8.6 |   |
|       Changes      in fair values of open fuel hedge contracts                                          |   |                                | (40.6  | )      |   |   | 12.6 |   |
|       Changes      in deferred income taxes                                                             |   |                                | 57.8   |   |   |   | (15.4 | ) |
|       Changes      in receivables (including from related companies)                                    |   |                                | (44.5  | )      |   |   | 61.2 |   |
|       Increase      in prepaid expenses and other current assets                                        |   |                                | (17.3  | )      |   |   | (35.2 | ) |
|       Increase      in air traffic liability                                                            |   |                                | 24.4   |   |   |   | 96.3 |   |
|       Increase      (decrease) in other current liabilities (including payable to related      parties) |   |                                | 21.2   |   |   |   | (9.9 | ) |
|       Increase      (decrease) in deferred revenue and other-net                                        |   |                                | 16.5   |   |   |   | (34.0 | ) |
| Net      cash provided by operating activities                                                                                        |   |                                | 265.3  |   |   |   | 219.9 |   |
|                                                                                                                                  |   |                                |   |   |   |   |   |   |
| Cash      flows from investing activities:                                                                                            |   |                                |   |   |   |   |   |   |
| Property      and equipment additions:                                                                                                |   |                                |   |   |   |   |   |   |
|      Aircraft      and aircraft purchase deposits                                                            |   |                                | (262.9 | )      |   |   | (287.4 | ) |
|      Other      flight equipment                                                                             |   |                                | (21.1  | )      |   |   | (16.9 | ) |
|      Other      property and equipment                                                                       |   |                                | (25.1  | )      |   |   | (31.0 | ) |
| Total      property and equipment additions                                                                                           |   |                                | (309.1 | )      |   |   | (335.3 | ) |
| Proceeds      from disposition of assets                                                                                              |   |                                | 0.8    |   |   |   | 5.9 |   |
| Purchases      of marketable securities                                                                                               |   |                                | (767.8 | )      |   |   | (608.4 | ) |
| Sales      and maturities of marketable securities                                                                                    |   |                                | 521.8  |   |   |   | 398.7 |   |
| Restricted      deposits and other                                                                                                    |   |                                | (4.6   | )      |   |   | 7.0 |   |
| Net      cash used in investing activities                                                                                            |   |                                | (558.9 | )      |   |   | (532.1 | ) |
|                                                                                                                                  |   |                                |   |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                            |   |                                |   |   |   |   |   |   |
| Proceeds      from issuance of long-term debt                                                                                         |   |                                | 159.3  |   |   |   | 576.4 |   |
| Proceeds      from sale-leaseback transactions, net                                                                                   |   |                                | 230.0  |   |   |   | - |   |
| Long-term      debt payments                                                                                                          |   |                                | (208.8 | )      |   |   | (209.7 | ) |
| Net      cash provided by financing activities                                                                                        |   |                                | 180.5  |   |   |   | 366.7 |   |
|                                                                                                                                  |   |                                |   |   |   |   |   |   |
| Net      change in cash and cash equivalents                                                                                          |   |                                | (113.1 | )      |   |   | 54.5 |   |
| Cash      and cash equivalents at beginning of year                                                                                   |   |                                | 283.0  |   |   |   | 204.3 |   |
|                                                                                                                                  |   |                                |   |   |   |   |   |   |
| Cash      and cash equivalents at end of period                                                                                       |   | $                                   | 169.9  |   |   | $      | 258.8 |   |
|                                                                                                                                  |   |                                |   |   |   |   |   |   |
| Supplemental      disclosure of cash paid during the period for:                                                                      |   |                                |   |   |   |   |   |   |
|      Interest      (net of amount capitalized)                                                               |   | $                                   | 66.2   |   |   | $      | 49.9 |   |
|      Income      taxes                                                                                       |   |                                | -      |   |   |   | 0.8 |   |
|                                                                                                                                  |   |                                |   |   |   |   |   |   |
| See      accompanying notes to condensed financial statements.                                                                        |   |                                |   |   |   |   |   |   |

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|                           |   | Level 1 |   |   | Level 2 |   |    | Level 3 |   |   | Total   |   |
|--------------------------------|--------|--------------|--------|--------|--------------|--------|---------|--------------|--------|--------|---------|--------|
| Cash      and cash equivalents |   | $            | 169.9  |   |         | $      | — |         |   | $      | — |   |   | $ | 169.9 |   |
| Marketable      securities     |   |         | 72.3   |   |         |   | 987.3   |         |   |   | — |   |   |   | 1,059.6 |   |
| Total                          |   | $            | 242.2  |   |         | $      | 987.3   |         |   | $      | — |   |   | $ | 1,229.5 |   |
|                           |   |         |   |   |         |   |    |         |   |   |    |   |   |   |   |   |

|                                |   | September 30,2009 |    |   | December      31, 2008 |   |
|-------------------------------------|--------|-------------------|---------|--------|------------------------|--------|
| Amortized      cost:                |   |              |    |   |                   |   |
| Government      securities/agencies |   | $                 | 386.1   |   |                   | $      | 329.1 |   |
| Asset-backed      obligations       |   |              | 236.3   |   |                   |   | 198.0 |   |
| Other      corporate obligations    |   |              | 420.0   |   |                   |   | 263.7 |   |
|                                |   | $                 | 1,042.4 |   |                   | $      | 790.8 |   |
| Fair      value:                    |   |              |    |   |                   |   |   |   |
| Government      securities/agencies |   | $                 | 392.9   |   |                   | $      | 342.8 |   |
| Asset-backed      obligations       |   |              | 235.6   |   |                   |   | 187.7 |   |
| Other      corporate obligations    |   |              | 431.1   |   |                   |   | 263.8 |   |
|                                |   | $                 | 1,059.6 |   |                   | $      | 794.3 |   |

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|                                |   |                          |   | Unrealized      Losses   |   |                        |   |                         |   |                                        |   |
|-------------------------------------|--------|-------------------------------|--------|--------------------------|--------|-----------------------------|--------|------------------------------|--------|---------------------------------------------|--------|
|                                |   | Unrealized      Gains in AOCL |   | Less      than 12 months |   | Greater      than 12 months |   | Total      Unrealized Losses |   | Less:      Credit Loss Recorded in Earnings |   | Net      Unrealized Losses in AOCL |   |   | Net      Unrealized Gains/(Losses) in AOCL |   |   | Fair      Value of Securities with Unrealized Losses |   |
| Government      Securities/Agencies |   | $                             | 6.8    |                     | $      | --                          |   | $                            | --     |                                        | $      | -- |   | $ | -- |   | $ | -- |   |   | $ | 6.8 |   |   | $ | 35.1 |   |
| Asset-backed      obligations       |   |                          | 3.1    |                     |   | --                          |   |                         | (5.5   | )                                           |   | (5.5 | ) |   | (1.7 | ) |   | (3.8 | ) |   |   | (0.7 | ) |   |   | 25.0 |   |
| Other      corporate obligations    |   |                          | 11.2   |                     |   | (0.1                        | )      |                         | --     |                                        |   | (0.1 | ) |   | -- |   |   | (0.1 | ) |   |   | 11.1 |   |   |   | 35.7 |   |
| Total                               |   | $                             | 21.1   |                     | $      | (0.1                        | )      | $                            | (5.5   | )                                           | $      | (5.6 | ) | $ | (1.7 | ) |   | (3.9 | ) |   | $ | 17.2 |   |   | $ | 95.8 |   |

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|                                      |   |                 |    |   |            |   |
|-------------------------------------------|--------|----------------------|---------|--------|-----------------|--------|
|                                      |   | Carrying      Amount |    |   | Fair      Value |   |
| Long-term      debt at September 30, 2009 |   | $                    | 1,509.6 |   |            | $      | 1,465.2 |   |
| Long-term      debt at December 31, 2008  |   | $                    | 1,559.2 |   |            | $      | 1,696.9 |   |

|                                           |   | Three      Months Ended September 30 |   |   | Nine      Months Ended September 30 |   |
|------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|
|                                           |   | 2009                                 |   |   | 2008                                |   |   | 2009 |   |   | 2008 |   |
| Raw      or “into-plane” fuel cost |   | $                                    | 159.5  |   |                                | $      | 334.5 |   |   | $ | 410.6 |   |   | $ | 918.8 |   |
| Impact      of hedging activity                |   |                                 | 7.1    |   |                                |   | 144.6 |   |   |   | (4.7 | ) |   |   | (54.8 | ) |
| Aircraft      fuel expense                     |   | $                                    | 166.6  |   |                                | $      | 479.1 |   |   | $ | 405.9 |   |   | $ | 864.0 |   |

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|                            | Approximate      % of Expected      Fuel Requirements |  Gallons      Hedged(in      millions) | Weighted-Average      Crude Oil Price      per Barrel |
|---------------------------------|-------------------------------------------------------|---------------------------------------------|-------------------------------------------------------|
| Fourth      Quarter 2009        | 50%                                                   | 36.1                                        | $76                                                   |
|   Remainder      2009 | 50%                                                   | 36.1                                        | $76                                                   |
| First      Quarter 2010         | 46%                                                   | 33.2                                        | $68                                                   |
| Second      Quarter 2010        | 47%                                                   | 35.7                                        | $68                                                   |
| Third      Quarter 2010         | 46%                                                   | 36.9                                        | $72                                                   |
| Fourth      Quarter 2010        | 34%                                                   | 24.9                                        | $78                                                   |
|   Full      Year 2010 | 43%                                                   | 130.7                                       | $71                                                   |
| First      Quarter 2011         | 26%                                                   | 19.7                                        | $86                                                   |
| Second      Quarter 2011        | 24%                                                   | 19.1                                        | $79                                                   |
| Third      Quarter 2011         | 22%                                                   | 17.8                                        | $80                                                   |
| Fourth      Quarter 2011        | 15%                                                   | 11.2                                        | $81                                                   |
|   Full      Year 2011 | 22%                                                   | 67.8                                        | $82                                                   |
| First      Quarter 2012         | 10%                                                   | 7.6                                         | $87                                                   |
| Second      Quarter 2012        | 7%                                                    | 5.8                                         | $86                                                   |
|   Full      Year 2012 | 4%                                                    | 13.4                                        | $86                                                   |

|                                              |   | September      30, 2009 |   |   | December      31, 2008 |   |
|---------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
| Crude      oil call options or “caps” |   | $                       | 65.5   |   |                   | $      | 43.5 |   |
| Crude      oil collar contracts                   |   |                    | ---    |   |                   |   | (20.0 | ) |
| Refining      margin swap contracts               |   |                    | (1.4   | )      |                   |   | --- |   |
|    Total                           |   | $                       | 64.1   |   |                   | $      | 23.5 |   |

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|                                                   |   | September      30, 2009 |    |    | December      31, 2008 |   |
|--------------------------------------------------------|--------|-------------------------|---------|---------|------------------------|--------|
| Fixed-rate      notes payable due through 2022         |   | $                       | 1,182.2 |    |                   | $      | 1,192.1 |   |
| Variable-rate      notes payable due through 2019      |   |                    | 327.4   |    |                   |   | 252.2 |   |
| 16BBank      line-of-credit facility expiring in 2010  |   |                    | 17B--   |    |                   |   | 18B75.0 |   |
| 19BPre-delivery      payment facility expiring in 2011 |   |                    | 20B--   |    |                   |   | 21B39.9 |   |
| Long-term      debt                                    |   |                    | 1,509.6 |    |                   |   | 1,559.2 |   |
| Less      current portion                         |   |                    | (126.3  | )  |                   |   | (225.1 | )  |
|                                                   |   | $                       | 1,383.3 |    |                   | $      | 1,334.1 |   |

|                                    |   | Three      Months Ended September 30 |   |   | Nine      Months Ended September 30 |   |
|-----------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|
|                                    |   | 2009                                 |   |   | 2008                                |   |   | 2009 |   |   | 2008 |   |
| Service      cost                       |   | $                                    | 11.0   |   |                                | $      | 11.7 |   |   | $ | 33.2 |   |   | $ | 35.0 |   |
| Interest      cost                      |   |                                 | 16.7   |   |                                |   | 15.7 |   |   |   | 50.1 |   |   |   | 47.0 |   |
| Expected      return on assets          |   |                                 | (12.8  | )      |                                |   | (18.0 | ) |   |   | (38.4 | ) |   |   | (53.9 | ) |
| Amortization      of prior service cost |   |                                 | 1.1    |   |                                |   | 1.1 |   |   |   | 3.3 |   |   |   | 3.3 |   |
| Actuarial      loss                     |   |                                 | 7.2    |   |                                |   | 1.4 |   |   |   | 21.6 |   |   |   | 4.2 |   |
| Net      pension expense                |   | $                                    | 23.2   |   |                                | $      | 11.9 |   |   | $ | 69.8 |   |   | $ | 35.6 |   |

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|                                                        |   | September 30,      2009 |   |   | December      31, 2008 |   |
|-------------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
| Restricted      deposits (primarily restricted investments) |   | $                       | 62.1   |   |                   | $      | 57.4 |   |
| Deferred      costs and other*                              |   |                    | 14.6   |   |                   |   | 16.0 |   |
|                                                        |   | $                       | 76.7   |   |                   | $      | 73.4 |   |

|                                              |   | September      30, 2009 |   |   | December      31, 2008 |   |
|---------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
| Current      Liabilities:                         |   |                    |   |   |                   |   |
| Other      accrued liabilities                    |   | $                       | 268.6  |   |                   | $      | 280.4 |   |
| Other      Liabilities and Credits (non-current): |   |                    |   |   |                   |   |   |   |
| Deferred      revenue                             |   |                    | 409.7  |   |                   |   | 394.1 |   |
| Other      liabilities                            |   |                    | 12.8   |   |                   |   | 15.9 |   |
|                                              |   | $                       | 691.1  |   |                   | $      | 690.4 |   |

|                                                                                                                                                                                                                                                                                                                                                                         |   | Three      Months Ended September 30 |   |   | Nine      Months Ended September 30 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|
|                                                                                                               |   | 2009                                 |   |   | 2008                                |   |   | 2009 |   |   | 2008 |   |
| Passenger      revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                                    | 51.9   |   |                                | $      | 39.8 |   |   | $ | 135.4 |   |   | $ | 100.6 |   |
| Other      - net revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                 | 39.5   |   |                                |   |  25.5 |   |   |   | 109.8 |   |   |   | 76.6 |   |
| Change      in Mileage Plan terms                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                 | --     |   |                                |   | 42.3 |   |   |   | -- |   |   |   | 42.3 |   |
|                                                                                                                                                                      |   | $                                    | 91.4   |   |                                | $      | 107.6 |   |   | $ | 245.2 |   |   | $ | 219.5 |   |

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|                                                                                                                                                                                                                                                                                                                                                              |   | Three      Months Ended September 30 |   |   | Nine      Months Ended September 30 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|
|                                                                                                              |   | 2009                                 |   |   | 2008                                |   |   | 2009 |   |   | 2008 |   |
| Stock      options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                    | 0.7    |   |                                | $      | 0.5 |   |   | $ | 3.3 |   |   | $ | 3.2 |   |
| Restricted      stock units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                 | 0.9    |   |                                |   | 1.4 |   |   |   | 4.4 |   |   |   | 4.5 |   |
| Performance      share units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                 | ---    |   |                                |   | --- |   |   |   | --- |   |   |   | (0.3 | ) |
| Employee      stock purchase plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                 | 0.3    |   |                                |   | 0.3 |   |   |   | 1.0 |   |   |   | 1.2 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $                                    | 1.9    |   |                                | $      | 2.2 |   |   | $ | 8.7 |   |   | $ | 8.6 |   |

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ITEM2.       MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

|   | · | Third Quarter in Review      – highlights from the third quarter of 2009 outlining some of the major      events that happened during the period and how they affected our financial      performance. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Results of Operations –      an in-depth analysis of the results of operations for the nine months      ended September 30, 2009.  We believe this analysis will help      the reader better understand our condensed statements of      operations.  This section also includes forward-looking      statements regarding our view of the remainder of  2009. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Liquidity and Capital      Resources – as we are filing this Form 10-Q with reduced      disclosures in accordance with General Instruction H(1)(a) and (b) of Form      10-Q, we do not discuss liquidity and capital      resources.  Liquidity and capital resources are managed at an      Air Group level.  As such, we would refer the reader to Alaska      Air Group, Inc.’s Form 10-Q filed on November 6, 2009 for an analysis of      cash flows, liquidity, and capitalresources. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Mainline      passenger revenue declined 6.5% because of continued demand weakness as      compared to the prior year.  In the third quarter, we had a      capacity reduction of 3.3% and a 3.4% decline in passenger unit      revenue compared with the prior-year period.  This compares with      a 2.2% year-over-year decline in the second quarter of 2009.  We      believe that demand deterioration is moderating compared with the      prior-year periods as evidenced by a year-over-year increase in passenger      traffic in the third quarter.  However, ticket yield continues      to be under significantpressure. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | As      previously announced, we began charging a $15 first bag service charge on      July 7, 2009. This fee does not apply to our MVP or MVP Gold Mileage Plan      members, for those traveling solely within the state of Alaska, or for      certain other passengers.  For the third quarter, the fee      generated $19.8 million of incremental revenue.  As previously      disclosed, we believe this fee will generate at least $70 million of      incremental revenue for Air Group on an annual basis, and Air Group      expects to meet or exceed the estimate of at least $30 million of      incremental revenue during the last half of  2009. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Mileage      Plan revenue increased by $14 million primarily as a result of an increase      in the commission revenue recognized from the sale of Mileage Plan      miles.  See further discussion in the “Results of Operations”      segment beginning on page 24. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      recorded $42.3 million in the prior-year quarter associated with a change      in our Mileage Plan program terms. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

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|   | · | Both      periods include adjustments to reflect timing of gain and loss recognition      resulting from mark-to-market fuel hedge accounting.  For the      first nine months of 2009, we recognized net mark-to-market gains of $47.4      million ($29.6 million after tax), compared to net losses of $52.4 million      ($32.8 million after tax) in the same period of  2008. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      first nine months of 2009 include the new pilot contract transition costs      of $35.8 million ($22.3 million aftertax). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      first nine months of 2008 include charges of $47.5 million ($29.8 million      after tax) related to the completion of our MD-80 fleet      transition. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      first nine months of 2008 included a $42.3 million benefit ($26.5 million      after tax) related to a change in the terms of our Mileage Plan      program. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      first nine months of 2008 included restructuring charges of $3.7 million      ($2.3 million after tax) related to the reduction in our work      force. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Financial      and Statistical Data (unaudited)        |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |
|--------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|---------|---------------|--------|--------|-----------|-----------|--------|--------|---------|--------|---------------|--------|
|                                                   |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |
|                                                   |   | Three      Months Ended September 30 |   |   | Nine      Months Ended September 30 |   |
| Financial      Data (in millions):                     |   | 2009                                 |   |   | 2008                                |   |    | %      Change |   |   | 2009      |      |   | 2008   |    |   | %      Change |   |
| Operating      Revenues:                               |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |
| Passenger                                              |   | $                                    | 702.0  |   |                                | $      | 751.2   |          |   |   | (6.5      | )         |   | $      | 1,844.3 |   |          | $      | 2,041.2 |   |   |   | (9.6 | ) |
| Freight      and mail                                  |   |                                 | 26.5   |   |                                |   | 29.2    |          |   |   | (9.2      | )         |   |   | 69.0    |   |          |   | 77.1 |   |   |   | (10.5 | ) |
| Other      - net                                       |   |                                 | 48.4   |   |                                |   | 33.5    |          |   |   | 44.5      |      |   |   | 136.5   |   |          |   | 101.2 |   |   |   | 34.9 |   |
| Change      in Mileage Plan terms                      |   |                                 | -      |   |                                |   | 42.3    |          |   | NM     |      |      |   | -      |    |   |          | 42.3   |   |   | NM |   |
| Total      mainline operating revenues                 |   |                                 | 776.9  |   |                                |   | 856.2   |          |   |   | (9.3      | )         |   |   | 2,049.8 |   |          |   | 2,261.8 |   |   |   | (9.4 | ) |
| Passenger      - purchased capacity                    |   |                                 | 81.9   |   |                                |   | 85.7    |          |   |   | (4.4      | )         |   |   | 211.4   |   |          |   | 233.9 |   |   |   | (9.6 | ) |
| Total      Operating Revenues                          |   |                                 | 858.8  |   |                                |   | 941.9   |          |   |   | (8.8      | )         |   |   | 2,261.2 |   |          |   | 2,495.7 |   |   |   | (9.4 | ) |
|                                                   |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| Operating      Expenses:                               |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| Wages      and benefits                                |   |                                 | 199.1  |   |                                |   | 182.5   |          |   |   | 9.1       |      |   |   | 594.9   |   |          |   | 558.9 |   |   |   | 6.4 |   |
| Variable      incentive pay                            |   |                                 | 20.8   |   |                                |   | 4.9     |          |   |   | 324.5     |      |   |   | 44.0    |   |          |   | 10.8 |   |   |   | 307.4 |   |
| Aircraft      fuel, including hedging gains and losses |   |                                 | 166.6  |   |                                |   | 479.1   |          |   |   | (65.2     | )         |   |   | 405.9   |   |          |   | 864.0 |   |   |   | (53.0 | ) |
| Aircraft      maintenance                              |   |                                 | 36.5   |   |                                |   | 32.6    |          |   |   | 12.0      |      |   |   | 129.4   |   |          |   | 112.1 |   |   |   | 15.4 |   |
| Aircraft      rent                                     |   |                                 | 27.2   |   |                                |   | 26.3    |          |   |   | 3.4       |      |   |   | 81.8    |   |          |   | 82.4 |   |   |   | (0.7 | ) |
| Landing      fees and other rentals                    |   |                                 | 43.0   |   |                                |   | 42.3    |          |   |   | 1.7       |      |   |   | 124.4   |   |          |   | 126.9 |   |   |   | (2.0 | ) |
| Contracted      services                               |   |                                 | 29.7   |   |                                |   | 31.9    |          |   |   | (6.9      | )         |   |   | 88.6    |   |          |   | 100.5 |   |   |   | (11.8 | ) |
| Selling      expenses                                  |   |                                 | 29.4   |   |                                |   | 33.1    |          |   |   | (11.2     | )         |   |   | 76.8    |   |          |   | 95.6 |   |   |   | (19.7 | ) |
| Depreciation      and amortization                     |   |                                 | 45.1   |   |                                |   | 42.8    |          |   |   | 5.4       |      |   |   | 132.6   |   |          |   | 123.2 |   |   |   | 7.6 |   |
| Food      and beverage service                         |   |                                 | 12.0   |   |                                |   | 12.8    |          |   |   | (6.3      | )         |   |   | 34.9    |   |          |   | 37.1 |   |   |   | (5.9 | ) |
| Other                                                  |   |                                 | 38.0   |   |                                |   | 41.0    |          |   |   | (7.3      | )         |   |   | 119.3   |   |          |   | 130.2 |   |   |   | (8.4 | ) |
| New      pilot contract transition costs               |   |                                 | -      |   |                                |   | -       |          |   | NM     |      |      |   | 35.8   |    |   |          | -      |   |   | NM |   |
| Restructuring      charges                             |   |                                 | -      |   |                                |   | 3.7     |          |   | NM     |      |      |   | -      |    |   |          | 3.7    |   |   | NM |   |
| Fleet      transition costs - MD-80                    |   |                                 | -      |   |                                |   | 21.5    |          |   | NM     |      |      |   | -      |    |   |          | 47.5   |   |   | NM |   |
| Total      mainline operating expenses                 |   |                                 | 647.4  |   |                                |   | 954.5   |          |   |   | (32.2     | )         |   |   | 1,868.4 |   |          |   | 2,292.9 |   |   |   | (18.5 | ) |
| Purchased      capacity costs                          |   |                                 | 74.7   |   |                                |   | 85.6    |          |   |   | (12.7     | )         |   |   | 206.3   |   |          |   | 246.8 |   |   |   | (16.4 | ) |
| Total      Operating Expenses                          |   |                                 | 722.1  |   |                                |   | 1,040.1 |          |   |   | (30.6     | )         |   |   | 2,074.7 |   |          |   | 2,539.7 |   |   |   | (18.3 | ) |
|                                                   |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| Operating      Income (Loss)                           |   |                                 | 136.7  |   |                                |   | (98.2   | )             |   |   |      |      |   |   | 186.5   |   |          |   | (44.0 | ) |   |   |   |   |
|                                                   |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| Interest      income                                   |   |                                 | 9.6    |   |                                |   | 12.8    |          |   |   |      |      |   |   | 29.2    |   |          |   | 38.2 |   |   |   |   |   |
| Interest      expense                                  |   |                                 | (22.4  | )      |                                |   | (23.5   | )             |   |   |      |      |   |   | (67.5   | )      |          |   | (67.5 | ) |   |   |   |   |
| Interest      capitalized                              |   |                                 | 1.4    |   |                                |   | 4.8     |          |   |   |      |      |   |   | 5.7     |   |          |   | 16.1 |   |   |   |   |   |
| Other      - net                                       |   |                                 | (0.5   | )      |                                |   | (3.3    | )             |   |   |      |      |   |   | (5.3    | )      |          |   | (2.7 | ) |   |   |   |   |
|                                                   |   |                                 | (11.9  | )      |                                |   | (9.2    | )             |   |   |      |      |   |   | (37.9   | )      |          |   | (15.9 | ) |   |   |   |   |
|                                                   |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| Income      (Loss) Before Income Tax                   |   | $                                    | 124.8  |   |                                | $      | (107.4  | )             |   |   |      |      |   | $      | 148.6   |   |          | $      | (59.9 | ) |   |   |   |   |
|                                                   |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| Mainline      Operating Statistics:                    |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| Revenue      passengers (000)                          |   |                                 | 4,240  |   |                                |   | 4,532   |          |   |   | (6.4      | )         |   |   | 11,796  |   |          |   | 13,037 |   |   |   | (9.5 | ) |
| RPMs      (000,000) "traffic"                          |   |                                 | 5,020  |   |                                |   | 5,012   |          |   |   | 0.2       |      |   |   | 13,812  |   |          |   | 14,410 |   |   |   | (4.1 | ) |
| ASMs      (000,000) "capacity"                         |   |                                 | 6,097  |   |                                |   | 6,306   |          |   |   | (3.3      | )         |   |   | 17,469  |   |          |   | 18,628 |   |   |   | (6.2 | ) |
| Passenger      load factor                             |   |                                 | 82.3   | %      |                                |   | 79.5    | %             |   | 2.8    | pts  |      |   | 79.1   | %       |   |          | 77.4   | % |   | 1.7 | pts  |
| Yield      per passenger mile                          |   |                                 | 13.98  | ¢ |                                |   | 14.99   | ¢        |   |   | (6.7      | )         |   |   | 13.35   | ¢ |          |   | 14.17 | ¢ |   |   | (5.8 | ) |
| Operating      revenue per ASM (RASM)                  |   |                                 | 12.74  | ¢ |                                |   | 13.58   | ¢        |   |   | (6.2      | )         |   |   | 11.73   | ¢ |          |   | 12.14 | ¢ |   |   | (3.4 | ) |
| Change      in Mileage Plan terms per ASM              |   |                                 | 0.00   | ¢ |                                |   | 0.67    | ¢        |   | NM     |      |      |   | 0.00   | ¢  |   |          | 0.23   | ¢ |   | NM |   |
| Passenger      revenue per ASM                         |   |                                 | 11.51  | ¢ |                                |   | 11.91   | ¢        |   |   | (3.4      | )         |   |   | 10.56   | ¢ |          |   | 10.96 | ¢ |   |   | (3.6 | ) |
| Operating      expenses per ASM                        |   |                                 | 10.62  | ¢ |                                |   | 15.14   | ¢        |   |   | (29.9     | )         |   |   | 10.70   | ¢ |          |   | 12.31 | ¢ |   |   | (13.1 | ) |
| Aircraft      fuel cost per ASM                        |   |                                 | 2.73   | ¢ |                                |   | 7.60    | ¢        |   |   | (64.1     | )         |   |   | 2.32    | ¢ |          |   | 4.64 | ¢ |   |   | (50.0 | ) |
| New      pilot contract transition costs per ASM       |   |                                 | 0.00   | ¢ |                                |   | 0.00    | ¢        |   | NM     |      |      |   | 0.21   | ¢  |   |          | 0.00   | ¢ |   | NM |   |
| Restructuring      charges per ASM                     |   |                                 | 0.00   | ¢ |                                |   | 0.06    | ¢        |   | NM     |      |      |   | 0.00   | ¢  |   |          | 0.02   | ¢ |   | NM |   |
| Fleet      transition costs per ASM                    |   |                                 | 0.00   | ¢ |                                |   | 0.34    | ¢        |   | NM     |      |      |   | 0.00   | ¢  |   |          | 0.25   | ¢ |   | NM |   |
| Aircraft      fuel cost per gallon                     |   | $                                    | 2.07   |   |                                | $      | 5.57    |          |   |   | (62.8     | )         |   | $      | 1.77    |   |          | $      | 3.34 |   |   |   | (47.0 | ) |
| Economic      fuel cost per gallon                     |   | $                                    | 2.15   |   |                                | $      | 3.47    |          |   |   | (38.0     | )         |   | $      | 1.98    |   |          | $      | 3.14 |   |   |   | (36.9 | ) |
| Fuel      gallons (000,000)                            |   |                                 | 80.1   |   |                                |   | 86.0    |          |   |   | (6.9      | )         |   |   | 229.9   |   |          |   | 258.3 |   |   |   | (11.0 | ) |
| Average      number of full-time equivalent employees  |   |                                 | 9,002  |   |                                |   | 9,594   |          |   |   | (6.2      | )         |   |   | 8,987   |   |          |   | 9,785 |   |   |   | (8.2 | ) |
| Aircraft      utilization (blk hrs/day)                |   |                                 | 9.9    |   |                                |   | 10.8    |          |   |   | (8.3      | )         |   |   | 9.9     |   |          |   | 10.8 |   |   |   | (8.3 | ) |
| Average      aircraft stage length (miles)             |   |                                 | 1,044  |   |                                |   | 981     |          |   |   | 6.4       |      |   |   | 1,027   |   |          |   | 975 |   |   |   | 5.3 |   |
| Operating      fleet at period-end                     |   |                                 | 116    |   |                                |   | 110     |          |   |   | 6         | a/c  |   |   | 116     |   |          |   | 110 |   |   |   | 6 | a/c  |
|                                                   |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| Regional      Operating Statistics:                    |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| RPMs      (000,000)                                    |   |                                 | 298    |   |                                |   | 304     |          |   |   | (2.0      | )         |   |   | 777     |   |          |   | 873 |   |   |   | (11.0 | ) |
| ASMs      (000,000)                                    |   |                                 | 383    |   |                                |   | 391     |          |   |   | (2.0      | )         |   |   | 1,058   |   |          |   | 1,153 |   |   |   | (8.2 | ) |
| Passenger      load factor                             |   |                                 | 77.8   | %      |                                |   | 77.7    | %             |   | 0.1    | pts  |      |   | 73.4   | %       |   |          | 75.7   | % |   | (2.3 | )pts  |
| Yield      per passenger mile                          |   |                                 | 27.48  | ¢ |                                |   | 28.19   | ¢        |   |   | (2.5      | )         |   |   | 27.21   | ¢ |          |   | 26.79 | ¢ |   |   | 1.6 |   |
| Operating      revenue per ASM                         |   |                                 | 21.38  | ¢ |                                |   | 21.92   | ¢        |   |   | (2.5      | )         |   |   | 19.98   | ¢ |          |   | 20.29 | ¢ |   |   | (1.5 | ) |
| Operating      expenses per ASM                        |   |                                 | 19.50  | ¢ |                                |   | 21.89   | ¢        |   |   | (10.9     | )         |   |   | 19.50   | ¢ |          |   | 21.41 | ¢ |   |   | (8.9 | ) |
|                                                   |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |
| NM      = Not Meaningful                               |   |                                 |   |   |                                |   |    |          |   |   |      |      |   |   |    |   |          |   |   |   |   |   |   |   |

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|                                        |   | Nine      Months Ended September 30 |    |
|---------------------------------------------|--------|-------------------------------------|---------|
| (in      millions)                          |   | 2009                                |    |   | 2008 |   |   | %      Change |   |
| Passenger      revenue - mainline           |   | $                                   | 1,844.3 |   |   | $ | 2,041.2 |   |   |   | (9.6 | ) |
| Freight      and mail                       |   |                                | 69.0    |   |   |   | 77.1 |   |   |   | (10.5 | ) |
| Other      - net                            |   |                                | 136.5   |   |   |   | 101.2 |   |   |   | 34.9 |   |
| Change      in Mileage Plan Terms           |   |                                | -       |   |   |   | 42.3 |   |   | NM |   |
| Total      mainline revenues                |   | $                                   | 2,049.8 |   |   | $ | 2,261.8 |   |   |   | (9.4 | ) |
| Passenger      revenue - purchased capacity |   |                                | 211.4   |   |   |   | 233.9 |   |   |   | (9.6 | ) |
| Total      operating revenues               |   | $                                   | 2,261.2 |   |   | $ | 2,495.7 |   |   |   | (9.4 | ) |

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|                                      |   | Nine      Months Ended September 30 |    |
|-------------------------------------------|--------|-------------------------------------|---------|
| (in      millions)                        |   | 2009                                |    |   | 2008 |   |   | %      Change |   |
| Mainline      fuel expense                |   | $                                   | 405.9   |   |   | $ | 864.0 |   |   |   | (53.0 | ) |
| Mainline      non-fuel operating expenses |   |                                | 1,462.5 |   |   |   | 1,428.9 |   |   |   | 2.4 |   |
| Mainline      operating expenses          |   |                                | 1,868.4 |   |   |   | 2,292.9 |   |   |   | (18.5 | ) |
| Purchased      capacity costs             |   |                                | 206.3   |   |   |   | 246.8 |   |   |   | (16.4 | ) |
| Total      operating expenses             |   | $                                   | 2,074.7 |   |   | $ | 2,539.7 |   |   |   | (18.3 | ) |

|                                                      |   | Nine      Months Ended September 30 |   |
|-----------------------------------------------------------|--------|-------------------------------------|--------|
| (in      millions)                                        |   | 2009                                |   |   | 2008 |   |   | %      Change |   |
| Wages                                                     |   | $                                   | 405.9  |   |   | $ | 410.7 |   |   |   | (1.2 | ) |
| Pension      and defined-contribution retirement benefits |   |                                | 87.6   |   |   |   | 50.9 |   |   |   | 72.1 |   |
| Medical      benefits                                     |   |                                | 60.1   |   |   |   | 55.1 |   |   |   | 9.1 |   |
| Other      benefits and payroll taxes                     |   |                                | 41.3   |   |   |   | 42.2 |   |   |   | (2.1 | ) |
| Total      wages and benefits                             |   | $                                   | 594.9  |   |   | $ | 558.9 |   |   |   | 6.4 |   |

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|                                                                                                   |   | Nine      Months Ended September 30 |   |
|--------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
| (in      millions, except per-gallon amounts)                                                          |   | 2009                                |   |   | 2008 |   |   | %      Change |   |
| Fuel      gallons consumed                                                                             |   |                                | 229.9  |   |   |   | 258.3 |   |   |   | (11.0 | ) |
| Raw      price per gallon                                                                              |   | $                                   | 1.79   |   |   | $ | 3.56 |   |   |   | (49.7 | ) |
| Total      raw fuel expense                                                                            |   | $                                   | 410.6  |   |   | $ | 918.8 |   |   |   | (55.3 | ) |
| Net      impact on fuel expense from (gains) and losses arising from      fuel-hedging activities |   |                                | (4.7   | ) |   |   | (54.8 | ) |   | NM |   |
| Aircraft      fuel expense                                                                             |   | $                                   | 405.9  |   |   | $ | 864.0 |   |   |   | (53.0 | ) |

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|                                                                                                  |   | Nine      Months Ended September 30 |   |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
| (in      millions, except per-gallon amounts)                                                         |   | 2009                                |   |   | 2008 |   |   | %      Change |   |
| Raw      fuel expense                                                                                 |   | $                                   | 410.6  |   |   | $ | 918.8 |   |   |   | (55.3 | ) |
| Plus      or minus: net of cash received from settled hedges and      premium expense recognized |   |                                | 42.7   |   |   |   | (107.2 | ) |   | NM |   |
| Economic      fuel expense                                                                            |   | $                                   | 453.3  |   |   | $ | 811.6 |   |   |   | (44.1 | ) |
| Fuel      gallons consumed                                                                            |   |                                | 229.9  |   |   |   | 258.3 |   |   |   | (11.0 | ) |
| Economic      fuel cost per gallon                                                                    |   | $                                   | 1.98   |   |   | $ | 3.14 |   |   |   | (36.9 | ) |

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|                                                  |   | Nine      Months Ended September 30 |   |
|-------------------------------------------------------|--------|-------------------------------------|--------|
|                                                  |   | 2009                                |   |   | 2008 |   |   | %      Change |   |
| Total      mainline operating expenses per ASM (CASM) |   |                                | 10.70  | ¢ |   |   | 12.31 | ¢ |   |   | (13.1 | ) |
| CASM      includes the following components:          |   |                                |   |   |   |   |   |   |   |   |   |   |
| Aircraft      fuel cost per ASM                       |   |                                | 2.32   | ¢ |   |   | 4.64 | ¢ |   |   | (50.0 | ) |
| New      pilot contract transition costs per ASM      |   |                                | 0.21   | ¢ |   |   | - |   |   | NM |   |
| Restructuring      charges per ASM                    |   |                                | -      |   |   |   | 0.02 | ¢ |   | NM |   |
| Fleet      transition costs per ASM                   |   |                                | -      |   |   |   | 0.25 | ¢ |   | NM |   |

|   | · | By      eliminating fuel expense and certain special items from our unit cost      metrics, we believe that we have better visibility into the results of 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 operatingcosts 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 bymanagement. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Cost      per ASM 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.  These decision-makers evaluate operating results      of the “mainline” operation, which includes the operation of the B737      fleet branded in Alaska Airlines livery.  The revenue and      expenses associated with purchased capacity are evaluated      separately. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Cost      per ASM excluding fuel (and other items as specified in our plan      documents) is an important metric for the PBP incentive plan that covers      the majority of our employees. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Cost      per ASM 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, new pilot contract transition costs, and      restructuring charges 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. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Although      we disclose our “mainline” passenger unit revenue, we do not (nor are we      able to) evaluate mainline unit revenue excluding the impact that changes      in fuel costs have had on ticket prices.  Fuel expense      represents a large percentage of our total mainline operating      expenses.  Fluctuations in fuel prices often drive changes in      unit revenue 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Exhibit      No. | Description |
|------------------|-------------|

| 10.1# | Third      Amendment to October 19, 2005 Credit Agreement, dated May 29, 2009 (Filed      as Exhibit 10.1 to Alaska Air Group, Inc.’s {Commission File No. 1-8957}      Quarterly Report on Form 10-Q for the period ended September 30, 2009,      filed on November 6, 2009 and incorporated herein by      reference) |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.1* | Section 302 Certification of Chief Executive Officer      Pursuant to 18 U.S.C. Section1350 |
|-------|---------------------------------------------------------------------------------------------|

| 31.2* | Section 302 Certification of Chief Financial Officer      Pursuant to 18 U.S.C. Section1350 |
|-------|---------------------------------------------------------------------------------------------|

| 32.1* | Section 906 Certification of Chief Executive Officer      Pursuant to 18 U.S.C. Section1350 |
|-------|---------------------------------------------------------------------------------------------|

| 32.2* | Section 906 Certification of Chief Financial Officer      Pursuant to 18 U.S.C. Section1350 |
|-------|---------------------------------------------------------------------------------------------|

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