----

----

| 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  ¨ |

----

ALASK

| 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          | 30       |
|                                           | ITEM 1.  | LEGAL PROCEEDINGS | 30 |
|                                           | ITEM 1A. | RISK FACTORS | 30 |
|                                           | ITEM 5.  | OTHER INFORMATION | 30 |
|                                           | ITEM 6.  | EXHIBITS | 30 |
| SIGNATURES                                     |     | 31 |
| EXHIBIT INDEX                                  |     | 32 |

----

Table of Contents

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

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

|   | · | our ability to meet our cost reduction goals; |
|--------|--------|-----------------------------------------------|

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

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

|   | · | 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; |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

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

|   | · | our reliance on third-party vendors and partners; and |
|--------|--------|-------------------------------------------------------|

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

----

Table of Contents

| PART I.    FINANCIAL INFORMATION                      |   |          |    |   |              |   |
|---------------------------------------------------------------------------|--------|---------------|---------|--------|-------------------|--------|
| ITEM 1.      CONDENSED FINANCIAL STATEMENTS |   |          |    |   |              |   |
|                                                                      |   |          |    |   |              |   |
| CONDENSED BALANCE SHEETS (unaudited)                                      |   |          |    |   |              |   |
| Alaska Airlines, Inc.                                                     |   |          |    |   |              |   |
|                                                                      |   |          |    |   |              |   |
| ASSETS                                                                    |   |          |    |   |              |   |
| (in millions)                                                             |   | June 30, 2010 |    |   | December 31, 2009 |   |
| Current Assets                                                            |   |          |    |   |              |   |
| Cash and cash equivalents                                                 |   | $             | 108.1   |   |              | $      | 164.2 |   |
| Marketable securities                                                     |   |          | 1,164.6 |   |              |   | 1,027.9 |   |
|   Total cash and marketable securities                          |   |          | 1,272.7 |   |              |   | 1,192.1 |   |
| Receivables from related companies                                        |   |          | 311.2   |   |              |   | 274.6 |   |
| Receivables - net                                                         |   |          | 142.1   |   |              |   | 104.7 |   |
| Inventories and supplies - net                                            |   |          | 33.6    |   |              |   | 27.3 |   |
| Deferred income taxes                                                     |   |          | 125.0   |   |              |   | 110.1 |   |
| Fuel hedge contracts                                                      |   |          | 26.6    |   |              |   | 54.9 |   |
| Prepaid expenses and other current assets                                 |   |          | 56.5    |   |              |   | 46.8 |   |
| Total Current Assets                                                      |   |          | 1,967.7 |   |              |   | 1,810.5 |   |
|                                                                      |   |          |    |   |              |   |   |   |
| Property and Equipment                                                    |   |          |    |   |              |   |   |   |
| Aircraft and other flight equipment                                       |   |          | 3,190.1 |   |              |   | 3,035.6 |   |
| Other property and equipment                                              |   |          | 544.9   |   |              |   | 540.1 |   |
| Deposits for future flight equipment                                      |   |          | 101.3   |   |              |   | 169.2 |   |
|                                                                      |   |          | 3,836.3 |   |              |   | 3,744.9 |   |
| Less accumulated depreciation and amortization                            |   |          | 1,213.2 |   |              |   | 1,136.6 |   |
| Total Property and Equipment - Net                                        |   |          | 2,623.1 |   |              |   | 2,608.3 |   |
|                                                                      |   |          |    |   |              |   |   |   |
| Fuel Hedge Contracts                                                      |   |          | 34.6    |   |              |   | 42.2 |   |
|                                                                      |   |          |    |   |              |   |   |   |
| Other Assets                                                              |   |          | 83.5    |   |              |   | 80.3 |   |
|                                                                      |   |          |    |   |              |   |   |   |
| Total Assets                                                              |   | $             | 4,708.9 |   |              | $      | 4,541.3 |   |
|                                                                      |   |          |    |   |              |   |   |   |
| 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)                                        |   | June 30, 2010 |    |   | December 31, 2009 |   |
| Current Liabilities                                                       |   |          |    |   |              |   |
| Accounts payable                                                          |   | $             | 47.3    |   |              | $      | 52.9 |   |
| Payables to related companies                                             |   |          | 98.4    |   |              |   | 73.2 |   |
| Accrued aircraft rent                                                     |   |          | 39.8    |   |              |   | 50.8 |   |
| Accrued wages, vacation and payroll taxes                                 |   |          | 116.2   |   |              |   | 132.7 |   |
| Other accrued liabilities                                                 |   |          | 547.9   |   |              |   | 506.4 |   |
| Air traffic liability                                                     |   |          | 528.8   |   |              |   | 365.9 |   |
| Current portion of long-term debt                                         |   |          | 128.9   |   |              |   | 131.2 |   |
| Total Current Liabilities                                                 |   |          | 1,507.3 |   |              |   | 1,313.1 |   |
|                                                                      |   |          |    |   |              |   |   |   |
| Long-Term Debt, Net of Current Portion                                    |   |          | 1,260.2 |   |              |   | 1,376.6 |   |
|                                                                      |   |          |    |   |              |   |   |   |
| Other Liabilities and Credits                                             |   |          |    |   |              |   |   |   |
| Deferred income taxes                                                     |   |          | 162.5   |   |              |   | 104.7 |   |
| Deferred revenue                                                          |   |          | 384.0   |   |              |   | 410.5 |   |
| Obligation for pension and postretirement medical benefits                |   |          | 409.7   |   |              |   | 421.0 |   |
| Other liabilities                                                         |   |          | 105.0   |   |              |   | 112.6 |   |
|                                                                      |   |          | 1,061.2 |   |              |   | 1,048.8 |   |
| Commitments and Contingencies                                             |   |          |    |   |              |   |   |   |
| Shareholder's Equity                                                      |   |          |    |   |              |   |   |   |
| Common stock, $1 par value                                                |   |          |    |   |              |   |   |   |
|   Authorized:      1,000 shares   |   |          |    |   |              |   |   |   |
|   Issued and outstanding:  2010 and 2009 - 500 shares |   |          | -       |   |              |   | - |   |
|   Capital in excess of par value                                |   |          | 656.8   |   |              |   | 649.9 |   |
| Accumulated other comprehensive loss                                      |   |          | (239.7  | )      |              |   | (240.0 | ) |
| Retained earnings                                                         |   |          | 463.1   |   |              |   | 392.9 |   |
|                                                                      |   |          | 880.2   |   |              |   | 802.8 |   |
| Total Liabilities and Shareholder's Equity                                |   | $             | 4,708.9 |   |              | $      | 4,541.3 |   |
|                                                                      |   |          |    |   |              |   |   |   |
| See accompanying notes to condensed financial statements.                 |   |          |    |   |              |   |   |   |

----

Table of Contents

| CONDENSED STATEMENTS OF OPERATIONS (unaudited)            |   |                       |   |   |                     |   |   |   |   |   |
|-----------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|--------|--------|--------|--------|
| Alaska Airlines, Inc.                                     |   |                       |   |   |                     |   |   |   |   |   |   |   |
|                                                      |   |                       |   |   |                     |   |   |   |   |   |   |   |
|                                                      |   | Three Months Ended June 30 |   |   | Six Months Ended June 30 |   |
| (in millions)                                             |   | 2010                       |   |   | 2009                     |   |   | 2010   |   |   | 2009 |   |
|                                                      |   |                       |   |   |                     |   |   |   |   |   |   |   |
| Operating Revenues                                        |   |                       |   |   |                     |   |   |   |   |   |   |   |
| Passenger                                                 |   | $                          | 702.3  |   |                     | $      | 602.5  |   |   | $      | 1,289.3 |   |   | $ | 1,142.3 |   |
| Freight and mail                                          |   |                       | 26.9   |   |                     |   | 24.2   |   |   |   | 48.9 |   |   |   | 42.5 |   |
| Other - net                                               |   |                       | 60.2   |   |                     |   | 54.9   |   |   |   | 112.3 |   |   |   | 88.1 |   |
| Total mainline operating revenues                         |   |                       | 789.4  |   |                     |   | 681.6  |   |   |   | 1,450.5 |   |   |   | 1,272.9 |   |
| Passenger - purchased capacity                            |   |                       | 83.1   |   |                     |   | 67.7   |   |   |   | 159.6 |   |   |   | 129.5 |   |
| Total Operating Revenues                                  |   |                       | 872.5  |   |                     |   | 749.3  |   |   |   | 1,610.1 |   |   |   | 1,402.4 |   |
| Operating Expenses                                        |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Wages and benefits                                        |   |                       | 190.9  |   |                     |   | 198.4  |   |   |   | 382.1 |   |   |   | 395.8 |   |
| Variable incentive pay                                    |   |                       | 17.9   |   |                     |   | 16.1   |   |   |   | 32.7 |   |   |   | 23.2 |   |
| Aircraft fuel, including hedging gains and losses         |   |                       | 214.5  |   |                     |   | 107.4  |   |   |   | 386.2 |   |   |   | 239.3 |   |
| Aircraft maintenance                                      |   |                       | 40.0   |   |                     |   | 46.6   |   |   |   | 82.1 |   |   |   | 92.9 |   |
| Aircraft rent                                             |   |                       | 24.3   |   |                     |   | 28.1   |   |   |   | 50.2 |   |   |   | 54.6 |   |
| Landing fees and other rentals                            |   |                       | 43.1   |   |                     |   | 40.6   |   |   |   | 84.8 |   |   |   | 81.4 |   |
| Contracted services                                       |   |                       | 31.5   |   |                     |   | 28.4   |   |   |   | 62.1 |   |   |   | 58.9 |   |
| Selling expenses                                          |   |                       | 30.7   |   |                     |   | 28.3   |   |   |   | 57.4 |   |   |   | 47.4 |   |
| Depreciation and amortization                             |   |                       | 47.6   |   |                     |   | 44.2   |   |   |   | 93.3 |   |   |   | 87.5 |   |
| Food and beverage service                                 |   |                       | 13.7   |   |                     |   | 11.9   |   |   |   | 25.5 |   |   |   | 22.9 |   |
| Other                                                     |   |                       | 36.7   |   |                     |   | 38.5   |   |   |   | 71.5 |   |   |   | 81.3 |   |
| New pilot contract transition costs                       |   |                       | -      |   |                     |   | 35.8   |   |   |   | - |   |   |   | 35.8 |   |
| Total mainline operating expenses                         |   |                       | 690.9  |   |                     |   | 624.3  |   |   |   | 1,327.9 |   |   |   | 1,221.0 |   |
| Purchased capacity costs                                  |   |                       | 74.3   |   |                     |   | 68.9   |   |   |   | 146.8 |   |   |   | 131.6 |   |
| Total Operating Expenses                                  |   |                       | 765.2  |   |                     |   | 693.2  |   |   |   | 1,474.7 |   |   |   | 1,352.6 |   |
| Operating Income                                          |   |                       | 107.3  |   |                     |   | 56.1   |   |   |   | 135.4 |   |   |   | 49.8 |   |
| Nonoperating Income (Expense)                             |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                           |   |                       | 9.5    |   |                     |   | 9.5    |   |   |   | 18.1 |   |   |   | 19.6 |   |
| Interest expense                                          |   |                       | (23.5  | )      |                     |   | (22.1  | )      |   |   | (45.6 | ) |   |   | (45.1 | ) |
| Interest capitalized                                      |   |                       | 1.6    |   |                     |   | 1.8    |   |   |   | 3.3 |   |   |   | 4.3 |   |
| Other - net                                               |   |                       | 1.6    |   |                     |   | (3.2   | )      |   |   | 2.5 |   |   |   | (4.8 | ) |
|                                                      |   |                       | (10.8  | )      |                     |   | (14.0  | )      |   |   | (21.7 | ) |   |   | (26.0 | ) |
| Income before income tax                                  |   |                       | 96.5   |   |                     |   | 42.1   |   |   |   | 113.7 |   |   |   | 23.8 |   |
| Income tax expense                                        |   |                       | 36.2   |   |                     |   | 16.3   |   |   |   | 43.5 |   |   |   | 10.1 |   |
| Net Income                                                |   | $                          | 60.3   |   |                     | $      | 25.8   |   |   | $      | 70.2 |   |   | $ | 13.7 |   |
|                                                      |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to condensed financial statements. |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

| CONDENSED STATEMENTS OF SHAREHOLDER'S EQUITY (unaudited)  |   |   |   |   |       |   |   |
|-----------------------------------------------------------|--------|--------|--------|--------|------------|--------|--------|
| Alaska Airlines, Inc.                                     |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |
|                                                      |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |
|                                                      |   |   |   |   |       |   |   | Accumulated |   |   |   |   |   |   |   |
|                                                      |   |   |   |   | Capital in |   |   | Other |   |   |   |   |   |   |   |
|                                                      |   | Common |   |   | Excess of  |   |   | Comprehensive |   |   | Retained |   |   |   |   |
| (in millions)                                             |   | Stock  |   |   | Par Value  |   |   | Loss |   |   | Earnings |   |   | Total |   |
| Balances at December 31, 2009                             |   | $      | 0.0    |   |       | $      | 649.9  |   |   | $ | (240.0 | ) |   | $ | 392.9 |   |   | $ | 802.8 |   |
| Net income for the six months ended June 30, 2010         |   |   |   |   |       |   |   |   |   |   |   | 70.2 |   |   |   | 70.2 |   |
| Other comprehensive income (loss):                        |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related to marketable securities:                         |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Change in fair value                          |   |   |   |   |       |   |   |   |   |   | 8.3 |   |   |   |   |   |   |   |   |   |
|   Reclassification to earnings                  |   |   |   |   |       |   |   |   |   |   | (3.7 | ) |   |   |   |   |   |   |   |   |
|   Income tax effect                             |   |   |   |   |       |   |   |   |   |   | (1.8 | ) |   |   |   |   |   |   |   |   |
|                                                      |   |   |   |   |       |   |   |   |   |   | 2.8 |   |   |   |   |   |   |   | 2.8 |   |
|                                                      |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjustments related to employee benefit plans:            |   |   |   |   |       |   |   |   |   |   | 10.8 |   |   |   |   |   |   |   |   |   |
|    Income tax effect                       |   |   |   |   |       |   |   |   |   |   | (3.7 | ) |   |   |   |   |   |   |   |   |
|                                                      |   |   |   |   |       |   |   |   |   |   | 7.1 |   |   |   |   |   |   |   | 7.1 |   |
| Related to interest rate derivative instruments:          |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Change in fair value                          |   |   |   |   |       |   |   |   |   |   | (15.5 | ) |   |   |   |   |   |   |   |   |
|   Income tax effect                             |   |   |   |   |       |   |   |   |   |   | 5.9 |   |   |   |   |   |   |   |   |   |
|                                                      |   |   |   |   |       |   |   |   |   |   | (9.6 | ) |   |   |   |   |   |   | (9.6 | ) |
| Total comprehensive income                                |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 70.5 |   |
|                                                      |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchase of treasury stock                                |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |
| Stock-based compensation                                  |   |   |   |   |       |   | 6.9    |   |   |   |   |   |   |   |   |   |   |   | 6.9 |   |
| Balances at June 30, 2010                                 |   | $      | 0.0    |   |       | $      | 656.8  |   |   | $ | (239.7 | ) |   | $ | 463.1 |   |   | $ | 880.2 |   |
|                                                      |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to condensed financial statements. |   |   |   |   |       |   |   |   |   |   |   |   |   |

----

Table of Contents

| CONDENSED STATEMENTS OF CASH FLOWS (unaudited)                         |   |                     |   |   |   |   |
|------------------------------------------------------------------------|--------|--------------------------|--------|--------|--------|--------|
| Alaska Airlines, Inc.                                                  |   |                     |   |   |   |   |
|                                                                   |   |                     |   |   |   |   |
|                                                                   |   | Six Months Ended June 30 |   |
| (in millions)                                                          |   | 2010                     |   |   | 2009   |   |
| Cash flows from operating activities:                                  |   |                     |   |   |   |   |
| Net income                                                             |   | $                        | 70.2   |   |   | $      | 13.7 |   |
| Adjustments to reconcile net income to net cash                        |   |                     |   |   |   |   |   |   |
|  provided by operating activities:                                |   |                     |   |   |   |   |   |   |
|    Non-cash impact of pilot contract transition costs   |   |                     | -      |   |   |   | 15.5 |   |
|    Depreciation and amortization                        |   |                     | 93.3   |   |   |   | 87.5 |   |
|    Stock-based compensation                             |   |                     | 6.9    |   |   |   | 6.6 |   |
|    Increase in air traffic liability                    |   |                     | 162.9  |   |   |   | 48.8 |   |
|    Changes in other assets and liabilities - net        |   |                     | (19.5  | )      |   |   | (62.0 | ) |
| Net cash provided by operating activities                              |   |                     | 313.8  |   |   |   | 110.1 |   |
| Cash flows from investing activities:                                  |   |                     |   |   |   |   |   |   |
| Property and equipment additions:                                      |   |                     |   |   |   |   |   |   |
|   Aircraft and aircraft purchase deposits                    |   |                     | (44.0  | )      |   |   | (242.1 | ) |
|   Other flight equipment                                     |   |                     | (51.7  | )      |   |   | (17.4 | ) |
|   Other property and equipment                               |   |                     | (13.0  | )      |   |   | (19.0 | ) |
| Total property and equipment additions                                 |   |                     | (108.7 | )      |   |   | (278.5 | ) |
| Proceeds from disposition of assets                                    |   |                     | -      |   |   |   | 0.8 |   |
| Purchases of marketable securities                                     |   |                     | (578.1 | )      |   |   | (515.0 | ) |
| Sales and maturities of marketable securities                          |   |                     | 446.2  |   |   |   | 361.0 |   |
| Restricted deposits and other                                          |   |                     | 0.2    |   |   |   | (4.1 | ) |
| Net cash used in investing activities                                  |   |                     | (240.4 | )      |   |   | (435.8 | ) |
| Cash flows from financing activities:                                  |   |                     |   |   |   |   |   |   |
| Proceeds from issuance of long-term debt                               |   |                     | -      |   |   |   | 130.3 |   |
| Proceeds from sale-leaseback transactions, net                         |   |                     | -      |   |   |   | 230.0 |   |
| Long-term debt payments                                                |   |                     | (118.7 | )      |   |   | (156.8 | ) |
| Other financing activities                                             |   |                     | (10.8  | )      |   |   | 2.4 |   |
| Net cash provided by (used for) financing activities                   |   |                     | (129.5 | )      |   |   | 205.9 |   |
| Net change in cash and cash equivalents                                |   |                     | (56.1  | )      |   |   | (119.8 | ) |
| Cash and cash equivalents at beginning of year                         |   |                     | 164.2  |   |   |   | 283.0 |   |
| Cash and cash equivalents at end of period                             |   | $                        | 108.1  |   |   | $      | 163.2 |   |
| Supplemental disclosure of cash paid (received) during the period for: |   |                     |   |   |   |   |   |   |
|   Interest (net of amount capitalized)                       |   | $                        | 43.6   |   |   | $      | 42.0 |   |
|   Income taxes                                               |   |                     | 0.1    |   |   |   | - |   |
|                                                                   |   |                     |   |   |   |   |   |   |
| See accompanying notes to condensed financial statements.              |   |                     |   |   |   |   |   |   |

----

Table of Contents

| NOTE 1. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
|---------|-----------------------------------------------------------|

|   | · | Proposed ASU – Comprehensive Income – was issued in May 2010 and will change the way comprehensive income is reported in the financial statements.  The new standard will require a continuous statement of comprehensive income be reported combining the Company’s current statement of operations with comprehensive income.  Comprehensive income or loss will be removed from the statement of shareholder’s equity. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Proposed ASU – Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities – was issued in May 2010.  This proposed standard will make significant changes to accounting for financial instruments.  It is expected that more financial instruments will be measured at fair value with subsequent changes recognized in net income.  The proposed standard also simplifies the requirements for assessing hedge effectiveness for cash flow hedges and modifies the threshold to initially qualify as an effective hedge.  Management believes this |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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|   | · | Proposed ASU – Revenue Recognition – was issued in June 2010.  This proposed standard will completely replace all existing revenue recognition accounting literature.  Generally, the proposed standard would require an entity to identify separate performance obligations under a contract, determine the transaction price, allocate that price to the separate components based on relative fair value, and recognize revenue when each performance obligation is satisfied.  This proposed standard could significantly impact the Company’s financial position, results of operations, and disclosures specifically in the accounting for the Company’s Mileage Plan revenue components. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Proposed ASU – Fair Value Measurements and Disclosures – was issued in June 2010.  This proposed standard changes how fair value is determined for certain assets and liabilities and requires additional disclosures about fair value instruments. Management is currently evaluating the impact of this new standard on the Company’s financial position, results of operations, cash flows, and disclosures. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Proposed ASU – Disclosure of Certain Loss Contingencies – was issued in July 2010.  This proposed standard enhances financial statement disclosure surrounding certain loss contingencies such as legal disputes, environmental remediation liabilities, self-insurance liabilities, among others.  The proposed standard primarily focuses on asserted claims and assessments and will require more robust disclosure of amounts, court or agency where legal proceedings are pending, principal parties, and other details not historically required.  As the proposed standard impacts disclosure only, management does not expect this proposed standard to impact the Company’s financial position or results of operations. |
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|                      |   | Level 1 |   |   | Level 2 |   |    | Level 3 |   |   | Total   |   |
|---------------------------|--------|--------------|--------|--------|--------------|--------|---------|--------------|--------|--------|---------|--------|
| Cash and cash equivalents |   | $            | 76.8   |   |         | $      | 31.3    |         |   | $      | — |   |   | $ | 108.1 |   |
| Marketable securities     |   |         | 176.1  |   |         |   | 988.5   |         |   |   | — |   |   |   | 1,164.6 |   |
| Total                     |   | $            | 252.9  |   |         | $      | 1,019.8 |         |   | $      | — |   |   | $ | 1,272.7 |   |

|                           |   | June 30, 2010 |    |   | December 31, 2009 |   |
|--------------------------------|--------|---------------|---------|--------|-------------------|--------|
| Amortized cost:                |   |          |    |   |              |   |
| Government securities/agencies |   | $             | 462.8   |   |              | $      | 376.7 |   |
| Asset-backed obligations       |   |          | 211.3   |   |              |   | 215.4 |   |
| Other corporate obligations    |   |          | 471.9   |   |              |   | 421.8 |   |
|                           |   | $             | 1,146.0 |   |              | $      | 1,013.9 |   |
| Fair value:                    |   |          |    |   |              |   |   |   |
| Government securities/agencies |   | $             | 470.6   |   |              | $      | 381.2 |   |
| Asset-backed obligations       |   |          | 211.0   |   |              |   | 214.7 |   |
| Other corporate obligations    |   |          | 483.0   |   |              |   | 432.0 |   |
|                           |   | $             | 1,164.6 |   |              | $      | 1,027.9 |   |

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|                           |   |                     |   |   | Unrealized Losses   |   |   |                   |   |   |                    |   |
|--------------------------------|--------|--------------------------|--------|--------|---------------------|--------|--------|------------------------|--------|--------|-------------------------|--------|
|                           |   | Unrealized Gains in AOCL |   |   | Less than 12 months |   |   | Greater than 12 months |   |   | Total Unrealized Losses |   |   | Less: Credit Loss Previously Recorded in Earnings |   |   | Net Unrealized Losses in AOCL |   |   | Net Unrealized Gains/(Losses) in AOCL |   |   | Fair Value of Securities with Unrealized Losses |   |
| Government Securities/Agencies |   | $                        | 7.8    |   |                | $      | --     |                   |   | $      | --                      |   |   | $ | -- |   |   | $ | -- |   |   | $ | -- |   |   | $ | 7.8 |   |   | $ | 22.6 |   |
| Asset-backed obligations       |   |                     | 2.1    |   |                |   | (0.5   | )                      |   |   | (4.1                    | )      |   |   | (4.6 | ) |   |   | (2.2 | ) |   |   | (2.4 | ) |   |   | (0.3 | ) |   |   | 80.7 |   |
| Other corporate obligations    |   |                     | 11.5   |   |                |   | (0.4   | )                      |   |   | --                      |   |   |   | (0.4 | ) |   |   | -- |   |   |   | (0.4 | ) |   |   | 11.1 |   |   |   | 57.4 |   |
| Total                          |   | $                        | 21.4   |   |                | $      | (0.9   | )                      |   | $      | (4.1                    | )      |   | $ | (5.0 | ) |   | $ | (2.2 | ) |   | $ | (2.8 | ) |   | $ | 18.6 |   |   | $ | 160.7 |   |

|                                |   |            |    |   |       |   |
|-------------------------------------|--------|-----------------|---------|--------|------------|--------|
|                                |   | Carrying Amount |    |   | Fair Value |   |
| Long-term debt at June 30, 2010     |   | $               | 1,389.1 |   |       | $      | 1,408.4 |   |
| Long-term debt at December 31, 2009 |   | $               | 1,507.8 |   |       | $      | 1,481.2 |   |

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|                                      |   | Three Months Ended June 30 |   |   | Six Months Ended June 30 |   |
|-------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                                      |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Raw or “into-plane” fuel cost |   | $                          | 187.6  |   |                     | $      | 132.3 |   |   | $ | 350.3 |   |   | $ | 251.1 |   |
| Impact of hedging activity                |   |                       | 26.9   |   |                     |   | (24.9 | ) |   |   | 35.9 |   |   |   | (11.8 | ) |
| Aircraft fuel expense                     |   | $                          | 214.5  |   |                     | $      | 107.4 |   |   | $ | 386.2 |   |   | $ | 239.3 |   |

|                                |   | Approximate % of Expected Fuel Requirements |   |   | Gallons Hedged(in millions) |   |   | Average Crude Oil Price per Barrel |   |   | Average Premium Cost per Barrel |   |
|-------------------------------------|--------|---------------------------------------------|--------|--------|-----------------------------|--------|--------|------------------------------------|--------|--------|---------------------------------|--------|
| Third Quarter 2010                  |   |                                        | 50     | %      |                        |   | 40.6   |                               |   | $      | 74                              |   |   | $ | 10 |   |
| Fourth Quarter 2010                 |   |                                        | 50     | %      |                        |   | 37.4   |                               |   | $      | 83                              |   |   | $ | 11 |   |
|    Remainder of 2010 |   |                                        | 50     | %      |                        |   | 78.0   |                               |   | $      | 78                              |   |   | $ | 11 |   |
| First Quarter 2011                  |   |                                        | 50     | %      |                        |   | 37.7   |                               |   | $      | 87                              |   |   | $ | 11 |   |
| Second Quarter 2011                 |   |                                        | 50     | %      |                        |   | 39.6   |                               |   | $      | 86                              |   |   | $ | 11 |   |
| Third Quarter 2011                  |   |                                        | 43     | %      |                        |   | 35.9   |                               |   | $      | 86                              |   |   | $ | 11 |   |
| Fourth Quarter 2011                 |   |                                        | 36     | %      |                        |   | 27.6   |                               |   | $      | 87                              |   |   | $ | 10 |   |
|    Full Year 2011    |   |                                        | 45     | %      |                        |   | 140.8  |                               |   | $      | 86                              |   |   | $ | 11 |   |
| First Quarter 2012                  |   |                                        | 30     | %      |                        |   | 23.3   |                               |   | $      | 87                              |   |   | $ | 12 |   |
| Second Quarter 2012                 |   |                                        | 21     | %      |                        |   | 17.6   |                               |   | $      | 89                              |   |   | $ | 13 |   |
| Third Quarter 2012                  |   |                                        | 19     | %      |                        |   | 16.1   |                               |   | $      | 92                              |   |   | $ | 12 |   |
| Fourth Quarter 2012                 |   |                                        | 17     | %      |                        |   | 13.2   |                               |   | $      | 89                              |   |   | $ | 12 |   |
|    Full Year 2012    |   |                                        | 22     | %      |                        |   | 70.2   |                               |   | $      | 89                              |   |   | $ | 12 |   |
| First Quarter 2013                  |   |                                        | 11     | %      |                        |   | 8.8    |                               |   | $      | 87                              |   |   | $ | 12 |   |
| Second Quarter 2013                 |   |                                        | 5      | %      |                        |   | 4.6    |                               |   | $      | 83                              |   |   | $ | 15 |   |
|    Full Year 2013    |   |                                        | 4      | %      |                        |   | 13.4   |                               |   | $      | 86                              |   |   | $ | 13 |   |

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|                                         |   | June 30, 2010 |   |   | December 31, 2009 |   |
|----------------------------------------------|--------|---------------|--------|--------|-------------------|--------|
| Crude oil call options or “caps” |   | $             | 60.2   |   |              | $      | 96.2 |   |
| Refining margin swap contracts               |   |          | 1.0    |   |              |   | 0.9 |   |
|    Total                      |   | $             | 61.2   |   |              | $      | 97.1 |   |

|                                         |   | June 30, 2010 |    |   | December 31, 2009 |   |
|----------------------------------------------|--------|---------------|---------|--------|-------------------|--------|
| Fixed-rate notes payable due through 2022    |   | $             | 1,112.7 |   |              | $      | 1,160.9 |   |
| Variable-rate notes payable due through 2019 |   |          | 276.4   |   |              |   | 346.9 |   |
| Long-term debt                               |   |          | 1,389.1 |   |              |   | 1,507.8 |   |
| Less current portion                         |   |          | (128.9  | )      |              |   | (131.2 | ) |
|                                         |   | $             | 1,260.2 |   |              | $      | 1,376.6 |   |

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|                               |   | Three Months Ended June 30 |   |   | Six Months Ended June 30 |   |
|------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                               |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Service cost                       |   | $                          | 8.1    |   |                     | $      | 11.1 |   |   | $ | 16.2 |   |   | $ | 22.2 |   |
| Interest cost                      |   |                       | 16.9   |   |                     |   | 16.7 |   |   |   | 33.8 |   |   |   | 33.4 |   |
| Expected return on assets          |   |                       | (17.7  | )      |                     |   | (12.8 | ) |   |   | (35.4 | ) |   |   | (25.6 | ) |
| Amortization of prior service cost |   |                       | (0.2   | )      |                     |   | 1.1 |   |   |   | (0.4 | ) |   |   | 2.2 |   |
| Actuarial loss                     |   |                       | 5.5    |   |                     |   | 7.2 |   |   |   | 11.0 |   |   |   | 14.4 |   |
| Net pension expense                |   | $                          | 12.6   |   |                     | $      | 23.3 |   |   | $ | 25.2 |   |   | $ | 46.6 |   |

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|                                                   |   | June 30, 2010 |   |   | December 31, 2009 |   |
|--------------------------------------------------------|--------|---------------|--------|--------|-------------------|--------|
| Restricted deposits (primarily restricted investments) |   | $             | 64.8   |   |              | $      | 65.0 |   |
| Deferred costs and other*                              |   |          | 18.7   |   |              |   | 15.3 |   |
|                                                   |   | $             | 83.5   |   |              | $      | 80.3 |   |

|                                         |   | June 30, 2010 |   |   | December 31, 2009 |   |
|----------------------------------------------|--------|---------------|--------|--------|-------------------|--------|
| Current Liabilities:                         |   |          |   |   |              |   |
| Other accrued liabilities                    |   | $             | 286.0  |   |              | $      | 267.9 |   |
| Other Liabilities and Credits (non-current): |   |          |   |   |              |   |   |   |
| Deferred revenue                             |   |          | 384.0  |   |              |   | 410.6 |   |
| Other liabilities                            |   |          | 12.2   |   |              |   | 13.2 |   |
|                                         |   | $             | 682.2  |   |              | $      | 691.7 |   |

|                                                                                                                                                                                                                                                                                                                                                                         |   | Three Months Ended June 30 |   |   | Six Months Ended June 30 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                                                                                                               |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Passenger revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $                          | 47.9   |   |                     | $      | 45.3 |   |   | $ | 86.5 |   |   | $ | 81.6 |   |
| Passenger revenue – purchased capacity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                       | 1.2    |   |                     |   | 1.0 |   |   |   | 2.2 |   |   |   | 1.9 |   |
| Other - net revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                       | 48.6   |   |                     |   | 45.8 |   |   |   | 90.6 |   |   |   | 70.3 |   |
|                                                                                                                                                                      |   | $                          | 97.7   |   |                     | $      | 92.1 |   |   | $ | 179.3 |   |   | $ | 153.8 |   |

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|                                                                                                                                                                                                                                                                                                                                                              |   | Three Months Ended June 30 |   |   | Six Months Ended June 30 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                                                                                                              |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                          | 0.6    |   |                     | $      | 0.6 |   |   | $ | 2.3 |   |   | $ | 2.6 |   |
| Restricted stock units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                       | 1.0    |   |                     |   | 0.9 |   |   |   | 3.2 |   |   |   | 3.4 |   |
| Performance share units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                       | 0.9    |   |                     |   | --- |   |   |   | 1.3 |   |   |   | --- |   |
| Employee stock purchase plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                       | --     |   |                     |   | 0.4 |   |   |   | 0.1 |   |   |   | 0.6 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $                          | 2.5    |   |                     | $      | 1.9 |   |   | $ | 6.9 |   |   | $ | 6.6 |   |

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ITE

|   | · | Second Quarter in Review – highlights from the second quarter of 2010 outlining 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 or the six months ended June 30, 2010.  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 2010. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 August 5, 2010 for an analysis of cash flows, liquidity, and capital resources. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Mainline operating unit revenues increased nearly 11% over the second quarter of 2009, stemming from significant increases in passenger unit revenues that were driven by higher load factors and yield.  Baggage fees contributed over $22 million to the revenue improvement, reflecting the benefit of our first bag fee that was introduced during the third quarter of 2009. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Economic fuel averaged $2.30 per gallon in the second quarter of 2010, compared to $1.84 in 2009.  This resulted in a $42.5 million increase in our economic fuel expense compared to the second quarter of 2009. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In the second quarter of 2009, Alaska entered into a new four-year agreement with their pilots. Among other contract items, the pilots received a one-time bonus of approximately $20.3 million, including taxes, and transitioned to a new sick-leave payment program resulting in a transition charge of $15.5 million. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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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 six months of 2010, we recognized net mark-to-market losses of $40.9 million, compared to net gains of $41.3 million in the same period of 2009. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The first six months of 2009 include new pilot contract transition costs of $35.8 million discussed previously. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | It is consistent with how we present information in our quarterly earnings press releases; |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | We believe it is the basis by which we are evaluated by industry analysts; |
|--------|--------|----------------------------------------------------------------------------|

|   | · | Our results excluding these items are most often used in internal management and board reporting and decision-making;   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our results excluding these adjustments serve as the basis for our various employee incentive plans, thus the information allows investors to better understand the changes in variable incentive pay expense in our condensed statements of operations;  and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | It is useful to monitor performance without these items as it improves a reader’s ability to compare our results to those of other airlines. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                   |   | Six Months Ended June 30 |   |
|--------------------------------------------------------|--------|--------------------------|--------|
| (in millions)                                          |   | 2010                     |   |   | 2009 |   |
| Income before income taxes, excluding items below |   | $                        | 154.6  |   |   | $ | 18.3 |   |
| New pilot contract transition costs                    |   |                     | -      |   |   |   | (35.8 | ) |
| Mark-to-market fuel hedge adjustments                  |   |                     | (40.9  | ) |   |   | 41.3 |   |
| Income before income taxes as reported                 |   | $                        | 113.7  |   |   | $ | 23.8 |   |

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| Alaska Airlines Financial and Statistical Data (unaudited) |   |                       |   |   |                     |   |   |     |   |   |      |            |   |
|------------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|--------|----------|--------|--------|-----------|-----------------|--------|
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |
|                                                       |   | Three Months Ended June 30 |   |   | Six Months Ended June 30 |   |
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |
| Financial Data (in millions):                              |   | 2010                       |   |   | 2009                     |   |   | % Change |   |   | 2010      |            |   | 2009 |   |   | % Change |   |
| Operating Revenues:                                        |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |
| Passenger                                                  |   | $                          | 702.3  |   |                     | $      | 602.5  |     |   |   | 16.6      |            |   | $ | 1,289.3 |   |   | $ | 1,142.3 |   |   |   | 12.9 |   |
| Freight and mail                                           |   |                       | 26.9   |   |                     |   | 24.2   |     |   |   | 11.2      |            |   |   | 48.9 |   |   |   | 42.5 |   |   |   | 15.1 |   |
| Other - net                                                |   |                       | 60.2   |   |                     |   | 54.9   |     |   |   | 9.7       |            |   |   | 112.3 |   |   |   | 88.1 |   |   |   | 27.5 |   |
| Total mainline operating revenues                          |   |                       | 789.4  |   |                     |   | 681.6  |     |   |   | 15.8      |            |   |   | 1,450.5 |   |   |   | 1,272.9 |   |   |   | 14.0 |   |
| Passenger - purchased capacity                             |   |                       | 83.1   |   |                     |   | 67.7   |     |   |   | 22.7      |            |   |   | 159.6 |   |   |   | 129.5 |   |   |   | 23.2 |   |
| Total Operating Revenues                                   |   |                       | 872.5  |   |                     |   | 749.3  |     |   |   | 16.4      |            |   |   | 1,610.1 |   |   |   | 1,402.4 |   |   |   | 14.8 |   |
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses:                                        |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Wages and benefits                                         |   |                       | 190.9  |   |                     |   | 198.4  |     |   |   | (3.8      | )               |   |   | 382.1 |   |   |   | 395.8 |   |   |   | (3.5 | ) |
| Variable incentive pay                                     |   |                       | 17.9   |   |                     |   | 16.1   |     |   |   | 11.2      |            |   |   | 32.7 |   |   |   | 23.2 |   |   |   | 40.9 |   |
| Aircraft fuel, including hedging gains and losses          |   |                       | 214.5  |   |                     |   | 107.4  |     |   |   | 99.7      |            |   |   | 386.2 |   |   |   | 239.3 |   |   |   | 61.4 |   |
| Aircraft maintenance                                       |   |                       | 40.0   |   |                     |   | 46.6   |     |   |   | (14.2     | )               |   |   | 82.1 |   |   |   | 92.9 |   |   |   | (11.6 | ) |
| Aircraft rent                                              |   |                       | 24.3   |   |                     |   | 28.1   |     |   |   | (13.5     | )               |   |   | 50.2 |   |   |   | 54.6 |   |   |   | (8.1 | ) |
| Landing fees and other rentals                             |   |                       | 43.1   |   |                     |   | 40.6   |     |   |   | 6.2       |            |   |   | 84.8 |   |   |   | 81.4 |   |   |   | 4.2 |   |
| Contracted services                                        |   |                       | 31.5   |   |                     |   | 28.4   |     |   |   | 10.9      |            |   |   | 62.1 |   |   |   | 58.9 |   |   |   | 5.4 |   |
| Selling expenses                                           |   |                       | 30.7   |   |                     |   | 28.3   |     |   |   | 8.5       |            |   |   | 57.4 |   |   |   | 47.4 |   |   |   | 21.1 |   |
| Depreciation and amortization                              |   |                       | 47.6   |   |                     |   | 44.2   |     |   |   | 7.7       |            |   |   | 93.3 |   |   |   | 87.5 |   |   |   | 6.6 |   |
| Food and beverage service                                  |   |                       | 13.7   |   |                     |   | 11.9   |     |   |   | 15.1      |            |   |   | 25.5 |   |   |   | 22.9 |   |   |   | 11.4 |   |
| Other                                                      |   |                       | 36.7   |   |                     |   | 38.5   |     |   |   | (4.7      | )               |   |   | 71.5 |   |   |   | 81.3 |   |   |   | (12.1 | ) |
| New pilot contract transition costs                        |   |                       | -      |   |                     |   | 35.8   |     |   | NM     |      |            |   | - |   |   |   | 35.8 |   |   | NM |   |
| Total mainline operating expenses                          |   |                       | 690.9  |   |                     |   | 624.3  |     |   |   | 10.7      |            |   |   | 1,327.9 |   |   |   | 1,221.0 |   |   |   | 8.8 |   |
| Purchased capacity costs                                   |   |                       | 74.3   |   |                     |   | 68.9   |     |   |   | 7.8       |            |   |   | 146.8 |   |   |   | 131.6 |   |   |   | 11.6 |   |
| Total Operating Expenses                                   |   |                       | 765.2  |   |                     |   | 693.2  |     |   |   | 10.4      |            |   |   | 1,474.7 |   |   |   | 1,352.6 |   |   |   | 9.0 |   |
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Income                                           |   |                       | 107.3  |   |                     |   | 56.1   |     |   |   |      |            |   |   | 135.4 |   |   |   | 49.8 |   |   |   |   |   |
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                            |   |                       | 9.5    |   |                     |   | 9.5    |     |   |   |      |            |   |   | 18.1 |   |   |   | 19.6 |   |   |   |   |   |
| Interest expense                                           |   |                       | (23.5  | )      |                     |   | (22.1  | )        |   |   |      |            |   |   | (45.6 | ) |   |   | (45.1 | ) |   |   |   |   |
| Interest capitalized                                       |   |                       | 1.6    |   |                     |   | 1.8    |     |   |   |      |            |   |   | 3.3 |   |   |   | 4.3 |   |   |   |   |   |
| Other - net                                                |   |                       | 1.6    |   |                     |   | (3.2   | )        |   |   |      |            |   |   | 2.5 |   |   |   | (4.8 | ) |   |   |   |   |
|                                                       |   |                       | (10.8  | )      |                     |   | (14.0  | )        |   |   |      |            |   |   | (21.7 | ) |   |   | (26.0 | ) |   |   |   |   |
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Income Before Income Tax                                   |   | $                          | 96.5   |   |                     | $      | 42.1   |     |   |   |      |            |   | $ | 113.7 |   |   | $ | 23.8 |   |   |   |   |   |
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Mainline Operating Statistics:                             |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue passengers (000)                                   |   |                       | 4,170  |   |                     |   | 3,983  |     |   |   | 4.7       |            |   |   | 7,811 |   |   |   | 7,556 |   |   |   | 3.4 |   |
| RPMs (000,000) "traffic"                                   |   |                       | 5,072  |   |                     |   | 4,613  |     |   |   | 10.0      |            |   |   | 9,544 |   |   |   | 8,792 |   |   |   | 8.6 |   |
| ASMs (000,000) "capacity"                                  |   |                       | 6,112  |   |                     |   | 5,852  |     |   |   | 4.4       |            |   |   | 11,653 |   |   |   | 11,372 |   |   |   | 2.5 |   |
| Passenger load factor                                      |   |                       | 83.0   | %      |                     |   | 78.8   | %        |   | 4.2    | pts  |            |   | 81.9 | % |   |   | 77.3 | % |   | 4.6 | pts  |
| Yield per passenger mile                                   |   |                       | 13.85  | ¢ |                     |   | 13.06  | ¢   |   |   | 6.0       |            |   |   | 13.51 | ¢ |   |   | 12.99 | ¢ |   |   | 4.0 |   |
| Operating revenue per ASM (RASM)                           |   |                       | 12.92  | ¢ |                     |   | 11.65  | ¢   |   |   | 10.9      |            |   |   | 12.45 | ¢ |   |   | 11.19 | ¢ |   |   | 11.3 |   |
| Passenger revenue per ASM (PRASM)                          |   |                       | 11.49  | ¢ |                     |   | 10.30  | ¢   |   |   | 11.6      |            |   |   | 11.06 | ¢ |   |   | 10.04 | ¢ |   |   | 10.2 |   |
| Operating expenses per ASM (CASM)                          |   |                       | 11.30  | ¢ |                     |   | 10.67  | ¢   |   |   | 5.9       |            |   |   | 11.40 | ¢ |   |   | 10.74 | ¢ |   |   | 6.1 |   |
| CASM, excluding fuel and pilot contract transition costs   |   |                       | 7.79   | ¢ |                     |   | 8.22   | ¢   |   |   | (5.2      | )               |   |   | 8.08 | ¢ |   |   | 8.32 | ¢ |   |   | (2.9 | ) |
| Aircraft fuel cost per gallon                              |   | $                          | 2.70   |   |                     | $      | 1.41   |     |   |   | 91.5      |            |   | $ | 2.55 |   |   | $ | 1.60 |   |   |   | 59.4 |   |
| Economic fuel cost per gallon                              |   | $                          | 2.30   |   |                     | $      | 1.84   |     |   |   | 25.0      |            |   | $ | 2.28 |   |   | $ | 1.88 |   |   |   | 21.3 |   |
| Fuel gallons (000,000)                                     |   |                       | 79.6   |   |                     |   | 76.5   |     |   |   | 4.1       |            |   |   | 151.9 |   |   |   | 149.8 |   |   |   | 1.4 |   |
| Average number of full-time equivalent employees           |   |                       | 8,621  |   |                     |   | 8,937  |     |   |   | (3.5      | )               |   |   | 8,579 |   |   |   | 8,979 |   |   |   | (4.5 | ) |
| Aircraft utilization (blk hrs/day)                         |   |                       | 10.0   |   |                     |   | 9.9    |     |   |   | 1.0       |            |   |   | 9.7 |   |   |   | 9.9 |   |   |   | (2.0 | ) |
| Average aircraft stage length (miles)                      |   |                       | 1,076  |   |                     |   | 1,020  |     |   |   | 5.5       |            |   |   | 1,072 |   |   |   | 1,018 |   |   |   | 5.3 |   |
| Operating fleet at period-end                              |   |                       | 116    |   |                     |   | 116    |     |   |   | 0         |  a/c  |   |   | 116 |   |   |   | 116 |   |   |   | 0 |  a/c  |
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchased Capacity Operating Statistics:                   |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| RPMs (000,000)                                             |   |                       | 284    |   |                     |   | 264    |     |   |   | 7.6       |            |   |   | 555 |   |   |   | 479 |   |   |   | 15.9 |   |
| ASMs (000,000)                                             |   |                       | 376    |   |                     |   | 359    |     |   |   | 4.7       |            |   |   | 745 |   |   |   | 675 |   |   |   | 10.4 |   |
| Passenger load factor                                      |   |                       | 75.5   | %      |                     |   | 73.5   | %        |   | 2.0    | pts  |            |   | 74.5 | % |   |   | 71.0 | % |   | 3.5 | pts  |
| Yield per passenger mile                                   |   |                       | 29.26  | ¢ |                     |   | 25.64  | ¢   |   |   | 14.1      |            |   |   | 28.76 | ¢ |   |   | 27.04 | ¢ |   |   | 6.4 |   |
| RASM                                                       |   |                       | 22.10  | ¢ |                     |   | 18.86  | ¢   |   |   | 17.2      |            |   |   | 21.42 | ¢ |   |   | 19.19 | ¢ |   |   | 11.6 |   |
| CASM                                                       |   |                       | 19.76  | ¢ |                     |   | 19.19  | ¢   |   |   | 3.0       |            |   |   | 19.70 | ¢ |   |   | 19.50 | ¢ |   |   | 1.0 |   |
|                                                       |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |
| NM = Not Meaningful                                        |   |                       |   |   |                     |   |   |     |   |   |      |            |   |   |   |   |   |   |   |   |   |   |   |   |

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|                                   |   | Six Months Ended June 30 |    |
|----------------------------------------|--------|--------------------------|---------|
| (in millions)                          |   | 2010                     |    |   | 2009 |   |   | % Change |   |
| Passenger revenue - mainline           |   | $                        | 1,289.3 |   |   | $ | 1,142.3 |   |   |   | 12.9 |   |
| Freight and mail                       |   |                     | 48.9    |   |   |   | 42.5 |   |   |   | 15.1 |   |
| Other - net                            |   |                     | 112.3   |   |   |   | 88.1 |   |   |   | 27.5 |   |
| Total mainline revenues                |   | $                        | 1,450.5 |   |   | $ | 1,272.9 |   |   |   | 14.0 |   |
| Passenger revenue - purchased capacity |   |                     | 159.6   |   |   |   | 129.5 |   |   |   | 23.2 |   |
| Total operating revenues               |   | $                        | 1,610.1 |   |   | $ | 1,402.4 |   |   |   | 14.8 |   |

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|                        |   | Six Months Ended June 30 |    |
|-----------------------------|--------|--------------------------|---------|
| (in millions)               |   | 2010                     |    |   | 2009 |   |   | % Change |   |
| Mainline fuel expense       |   | $                        | 386.2   |   |   | $ | 239.3 |   |   |   | 61.4 |   |
| Mainline non-fuel expenses  |   |                     | 941.7   |   |   |   | 981.7 |   |   |   | (4.1 | ) |
| Mainline operating expenses |   |                     | 1,327.9 |   |   |   | 1,221.0 |   |   |   | 8.8 |   |
| Purchased capacity costs    |   |                     | 146.8   |   |   |   | 131.6 |   |   |   | 11.6 |   |
| Total Operating Expenses    |   | $                        | 1,474.7 |   |   | $ | 1,352.6 |   |   |   | 9.0 |   |

|                                                 |   | Six Months Ended June 30 |   |
|------------------------------------------------------|--------|--------------------------|--------|
| (in millions)                                        |   | 2010                     |   |   | 2009 |   |   | % Change |   |
| Wages                                                |   | $                        | 268.3  |   |   | $ | 268.5 |   |   |   | (0.1 | ) |
| Pension and defined-contribution retirement benefits |   |                     | 42.1   |   |   |   | 58.4 |   |   |   | (27.9 | ) |
| Medical benefits                                     |   |                     | 44.5   |   |   |   | 40.3 |   |   |   | 10.4 |   |
| Other benefits and payroll taxes                     |   |                     | 27.2   |   |   |   | 28.6 |   |   |   | (4.9 | ) |
| Total wages and benefits                             |   | $                        | 382.1  |   |   | $ | 395.8 |   |   |   | (3.5 | ) |

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|                                                                                         |   | Six Months Ended June 30 |   |
|----------------------------------------------------------------------------------------------|--------|--------------------------|--------|
| (in millions, except per-gallon amounts)                                                     |   | 2010                     |   |   | 2009 |   |   | % Change |   |
| Fuel gallons consumed                                                                        |   |                     | 151.9  |   |   |   | 149.8 |   |   |   | 1.4 |   |
| Raw price per gallon                                                                         |   | $                        | 2.31   |   |   | $ | 1.68 |   |   |   | 37.5 |   |
| Total raw fuel expense                                                                       |   | $                        | 350.3  |   |   | $ | 251.1 |   |   |   | 39.5 |   |
| Net impact on fuel expense from (gains) and losses arising from fuel-hedging activities |   |                     | 35.9   |   |   |   | (11.8 | ) |   | NM |   |
| Aircraft fuel expense                                                                        |   | $                        | 386.2  |   |   | $ | 239.3 |   |   |   | 61.4 |   |

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|                                                                                        |   | Six Months Ended June 30 |   |
|---------------------------------------------------------------------------------------------|--------|--------------------------|--------|
| (in millions, except per-gallon amounts)                                                    |   | 2010                     |   |   | 2009 |   |   | % Change |   |
| Raw fuel expense                                                                            |   | $                        | 350.3  |   |   | $ | 251.1 |   |   |   | 39.5 |   |
| Plus or minus: net of cash received from settled hedges and premium expense recognized |   |                     | (5.0   | ) |   |   | 29.5 |   |   | NM |   |
| Economic fuel expense                                                                       |   | $                        | 345.3  |   |   | $ | 280.6 |   |   |   | 23.1 |   |
| Fuel gallons consumed                                                                       |   |                     | 151.9  |   |   |   | 149.8 |   |   |   | 1.4 |   |
| Economic fuel cost per gallon                                                               |   | $                        | 2.28   |   |   | $ | 1.88 |   |   |   | 21.3 |   |

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|                                             |   | Six Months Ended June 30 |   |
|--------------------------------------------------|--------|--------------------------|--------|
|                                             |   | 2010                     |   |   | 2009 |   |   | % Change |   |
| Total mainline operating expenses per ASM (CASM) |   |                     | 11.40  | ¢ |   |   | 10.74 | ¢ |   |   | 6.1 |   |
| Less the following components:                   |   |                     |   |   |   |   |   |   |   |   |   |   |
| Aircraft fuel cost per ASM                       |   |                     | 3.32   | ¢ |   |   | 2.11 | ¢ |   |   | 57.3 |   |
| New pilot contract transition costs per ASM      |   |                     | -      |   |   |   | 0.31 | ¢ |   | NM |   |
| CASM, excluding fuel and noted items             |   |                     | 8.08   | ¢ |   |   | 8.32 | ¢ |   |   | (2.9 | ) |

|   | · | 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 operating costs can result in a significant improvement in operating results.  In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | CASM excluding fuel and certain special items is one of the most important measures used by management of both Alaska and Horizon and by the board of directors in assessing quarterly and annual cost performance.  For Alaska Airlines, 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they compare our airlines to others in the industry.  The measure is also the subject of frequent questions from investors. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Although we disclose our “mainline” passenger unit revenues for Alaska, we do not (nor are we able to) evaluate mainline unit revenues 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 revenues in the mid-to-long term.  Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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EXHI

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

| 31.1* | Section 302 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 |
|-------|-----------------------------------------------------------------------------------------|

| 31.2* | Section 302 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
|-------|-----------------------------------------------------------------------------------------|

| 32.1* | Section 906 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 |
|-------|-----------------------------------------------------------------------------------------|

| 32.2* | Section 906 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
|-------|-----------------------------------------------------------------------------------------|

| * Filed herewith. |
|-------------------|