----

----

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

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

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

----

TABLE

| 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 | 31 |
| PART      II.  OTHER INFORMATION          | 32            |
|                                                | ITEM      1.  | LEGAL      PROCEEDINGS | 32 |
|                                                | ITEM      1A. | RISK      FACTORS | 32 |
|                                                | ITEM      5.  | OTHER      INFORMATION | 32 |
|                                                | ITEM      6.  | EXHIBITS | 32 |
| SIGNATURES                                          |          | 33 |
| EXHIBIT      INDEX                                  |          | 34 |

----

Table of Contents

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

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

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

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

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

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

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

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

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

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

|   | · | our inability to achieve or      maintain profitability; |
|--------|--------|----------------------------------------------------------|

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

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

|   | · | liability and other claims      asserted against us; |
|--------|--------|------------------------------------------------------|

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

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

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

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

----

Table of Contents

| PART I.    FINANCIAL      INFORMATION     |   |             |    |   |                   |   |
|---------------------------------------------------------------|--------|------------------|---------|--------|------------------------|--------|
| ITEM 1.  CONDENSED FINANCIAL      STATEMENTS        |   |             |    |   |                   |   |
|                                                          |   |             |    |   |                   |   |
| CONDENSED BALANCE SHEETS      (unaudited)                     |   |             |    |   |                   |   |
| Alaska Airlines,      Inc.                                    |   |             |    |   |                   |   |
|                                                          |   |             |    |   |                   |   |
| ASSETS                                                        |   |             |    |   |                   |   |
|  (in    millions)                                        |   | June 30,    2009 |    |   | December 31,      2008 |   |
| Current    Assets                                             |   |             |    |   |                   |   |
| Cash and cash      equivalents                                |   | $                | 163.2   |   |                   | $      | 283.0 |   |
| Marketable      securities                                    |   |             | 958.5   |   |                   |   | 794.3 |   |
|   Total cash and      marketable securities         |   |             | 1,121.7 |   |                   |   | 1,077.3 |   |
| Receivables from related      companies                       |   |             | 305.0   |   |                   |   | 285.9 |   |
| Receivables -      net                                        |   |             | 153.1   |   |                   |   | 98.9 |   |
| Inventories and supplies -      net                           |   |             | 21.7    |   |                   |   | 26.7 |   |
| Deferred income      taxes                                    |   |             | 141.0   |   |                   |   | 146.7 |   |
| Fuel hedge      contracts                                     |   |             | 32.7    |   |                   |   | 13.7 |   |
| Prepaid expenses and other current      assets                |   |             | 27.9    |   |                   |   | 30.1 |   |
| Total Current      Assets                                     |   |             | 1,803.1 |   |                   |   | 1,679.3 |   |
|                                                          |   |             |    |   |                   |   |   |   |
| Property and      Equipment                                   |   |             |    |   |                   |   |   |   |
| Aircraft and other flight      equipment                      |   |             | 3,027.7 |   |                   |   | 2,898.5 |   |
| Other property and      equipment                             |   |             | 537.6   |   |                   |   | 519.8 |   |
| Deposits for future flight      equipment                     |   |             | 118.7   |   |                   |   | 237.6 |   |
|                                                          |   |             | 3,684.0 |   |                   |   | 3,655.9 |   |
| Less accumulated depreciation and      amortization           |   |             | 1,061.3 |   |                   |   | 1,009.8 |   |
| Total Property and Equipment -      Net                       |   |             | 2,622.7 |   |                   |   | 2,646.1 |   |
|                                                          |   |             |    |   |                   |   |   |   |
| Fuel Hedge      Contracts                                     |   |             | 33.1    |   |                   |   | 29.8 |   |
|                                                          |   |             |    |   |                   |   |   |   |
| OtherAssets                                                   |   |             | 78.7    |   |                   |   | 73.4 |   |
|                                                          |   |             |    |   |                   |   |   |   |
| TotalAssets                                                   |   | $                | 4,537.6 |   |                   | $      | 4,428.6 |   |
|                                                          |   |             |    |   |                   |   |   |   |
| See accompanying notes to      condensed inancial statements. |   |             |    |   |                   |   |   |   |

----

Table of Contents

| CONDENSED BALANCE SHEETS      (unaudited)                                    |   |             |    |   |                   |   |
|------------------------------------------------------------------------------|--------|------------------|---------|--------|------------------------|--------|
| Alaska Airlines,      Inc.                                                   |   |             |    |   |                   |   |
|                                                                         |   |             |    |   |                   |   |
| LIABILITIES AND SHAREHOLDER'S      EQUITY                               |   |             |    |   |                   |   |
| (in millions except share      amounts)                                      |   | June 30,    2009 |    |   | December 31,      2008 |   |
| Current      Liabilities                                                     |   |             |    |   |                   |   |
| Accounts      payable                                                        |   | $                | 42.9    |   |                   | $      | 49.4 |   |
| Payables to related      companies                                           |   |             | 64.9    |   |                   |   | 53.5 |   |
| Accrued aircraft      rent                                                   |   |             | 50.8    |   |                   |   | 60.2 |   |
| Accrued wages, vacation and      payroll taxes                               |   |             | 104.1   |   |                   |   | 101.2 |   |
| Other accrued      liabilities                                               |   |             | 543.0   |   |                   |   | 510.7 |   |
| Air traffic      liability                                                   |   |             | 421.0   |   |                   |   | 372.2 |   |
| Fuel hedge contracts      liability                                          |   |             | 3.4     |   |                   |   | 20.0 |   |
| Current portion of long-term      debt                                       |   |             | 145.5   |   |                   |   | 225.1 |   |
| Total Current      Liabilities                                               |   |             | 1,375.6 |   |                   |   | 1,392.3 |   |
|                                                                         |   |             |    |   |                   |   |   |   |
| Long-Term Debt, Net of Current      Portion                                  |   |             | 1,387.2 |   |                   |   | 1,334.1 |   |
|                                                                         |   |             |    |   |                   |   |   |   |
| Other Liabilities and      Credits                                           |   |             |    |   |                   |   |   |   |
| Deferred income      taxes                                                   |   |             | 12.8    |   |                   |   | 2.0 |   |
| Deferred      revenue                                                        |   |             | 426.7   |   |                   |   | 394.1 |   |
| Obligation for pension and      postretirement medical benefits              |   |             | 583.3   |   |                   |   | 584.7 |   |
| Other      liabilities                                                       |   |             | 118.3   |   |                   |   | 126.4 |   |
|                                                                         |   |             | 1,141.1 |   |                   |   | 1,107.2 |   |
| Commitments and      Contingencies                                           |   |             |    |   |                   |   |   |   |
| Shareholder's      Equity                                                    |   |             |    |   |                   |   |   |   |
| Common stock, $1 par      value                                              |   |             |    |   |                   |   |   |   |
|   Authorized:      1,000      shares |   |             |    |   |                   |   |   |   |
|   Issued:  2009      and 2008 - 500 shares               |   |             | -       |   |                   |   | - |   |
|   Capital in excess of      par value                              |   |             | 646.7   |   |                   |   | 640.1 |   |
| Accumulated other comprehensive      loss                                    |   |             | (309.9  | )      |                   |   | (328.3 | ) |
| Retained      earnings                                                       |   |             | 296.9   |   |                   |   | 283.2 |   |
|                                                                         |   |             | 633.7   |   |                   |   | 595.0 |   |
| Total Liabilities and      Shareholder's Equity                              |   | $                | 4,537.6 |   |                   | $      | 4,428.6 |   |
|                                                                         |   |             |    |   |                   |   |   |   |
| See accompanying notes to      condensed financial statements.               |   |             |    |   |                   |   |   |   |

----

Table of Contents

| CONDENSED STATEMENTS OF OPERATIONS      (unaudited)            |   |                            |   |   |                          |   |   |   |   |   |
|----------------------------------------------------------------|--------|---------------------------------|--------|--------|-------------------------------|--------|--------|--------|--------|--------|
| Alaska Airlines,      Inc.                                     |   |                            |   |   |                          |   |   |   |   |   |   |   |
|                                                           |   |                            |   |   |                          |   |   |   |   |   |   |   |
|                                                           |   | Three Months Ended June      30 |   |   | Six Months Ended June      30 |   |
| (in    millions)                                               |   | 2009                            |   |   | 2008                          |   |   | 2009   |   |   | 2008 |   |
|                                                           |   |                            |   |   |                          |   |   |   |   |   |   |   |
| Operating      Revenues                                        |   |                            |   |   |                          |   |   |   |   |   |   |   |
| Passenger                                                      |   | $                               | 602.5  |   |                          | $      | 682.7  |   |   | $      | 1,142.3 |   |   | $ | 1,290.0 |   |
| Freight and      mail                                          |   |                            | 24.2   |   |                          |   | 26.6   |   |   |   | 42.5 |   |   |   | 47.9 |   |
| Other - net                                                    |   |                            | 54.9   |   |                          |   | 33.3   |   |   |   | 88.1 |   |   |   | 67.7 |   |
| Total mainline operating      revenues                         |   |                            | 681.6  |   |                          |   | 742.6  |   |   |   | 1,272.9 |   |   |   | 1,405.6 |   |
| Passenger - purchased      capacity                            |   |                            | 67.7   |   |                          |   | 77.8   |   |   |   | 129.5 |   |   |   | 148.2 |   |
| Total Operating      Revenues                                  |   |                            | 749.3  |   |                          |   | 820.4  |   |   |   | 1,402.4 |   |   |   | 1,553.8 |   |
| Operating      Expenses                                        |   |                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Wages and      benefits                                        |   |                            | 198.4  |   |                          |   | 184.3  |   |   |   | 395.8 |   |   |   | 376.4 |   |
| Variable incentive      pay                                    |   |                            | 16.1   |   |                          |   | 3.3    |   |   |   | 23.2 |   |   |   | 5.9 |   |
| Aircraft fuel, including hedging      gains and losses         |   |                            | 107.4  |   |                          |   | 151.2  |   |   |   | 239.3 |   |   |   | 384.9 |   |
| Aircraft      maintenance                                      |   |                            | 46.6   |   |                          |   | 37.4   |   |   |   | 92.9 |   |   |   | 79.5 |   |
| Aircraft    rent                                               |   |                            | 28.1   |   |                          |   | 27.9   |   |   |   | 54.6 |   |   |   | 56.1 |   |
| Landing fees and other      rentals                            |   |                            | 40.6   |   |                          |   | 42.7   |   |   |   | 81.4 |   |   |   | 84.6 |   |
| Contracted      services                                       |   |                            | 28.4   |   |                          |   | 33.9   |   |   |   | 58.9 |   |   |   | 68.6 |   |
| Selling      expenses                                          |   |                            | 28.3   |   |                          |   | 36.0   |   |   |   | 47.4 |   |   |   | 62.5 |   |
| Depreciation and      amortization                             |   |                            | 44.2   |   |                          |   | 41.6   |   |   |   | 87.5 |   |   |   | 80.4 |   |
| Food and beverage      service                                 |   |                            | 11.9   |   |                          |   | 12.6   |   |   |   | 22.9 |   |   |   | 24.3 |   |
| Other                                                          |   |                            | 38.5   |   |                          |   | 47.4   |   |   |   | 81.3 |   |   |   | 89.2 |   |
| New pilot contract transition      costs                       |   |                            | 35.8   |   |                          |   | -      |   |   |   | 35.8 |   |   |   | - |   |
| Fleet transition costs -      MD-80                            |   |                            | -      |   |                          |   | 26.0   |   |   |   | - |   |   |   | 26.0 |   |
| Total mainline operating      expenses                         |   |                            | 624.3  |   |                          |   | 644.3  |   |   |   | 1,221.0 |   |   |   | 1,338.4 |   |
| Purchased capacity      costs                                  |   |                            | 68.9   |   |                          |   | 84.5   |   |   |   | 131.6 |   |   |   | 161.2 |   |
| Total Operating      Expenses                                  |   |                            | 693.2  |   |                          |   | 728.8  |   |   |   | 1,352.6 |   |   |   | 1,499.6 |   |
| Operating      Income                                          |   |                            | 56.1   |   |                          |   | 91.6   |   |   |   | 49.8 |   |   |   | 54.2 |   |
| Nonoperating Income      (Expense)                             |   |                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Interest    income                                             |   |                            | 9.5    |   |                          |   | 12.3   |   |   |   | 19.6 |   |   |   | 25.4 |   |
| Interest      expense                                          |   |                            | (22.1  | )      |                          |   | (22.2  | )      |   |   | (45.1 | ) |   |   | (44.0 | ) |
| Interest      capitalized                                      |   |                            | 1.8    |   |                          |   | 5.4    |   |   |   | 4.3 |   |   |   | 11.3 |   |
| Other - net                                                    |   |                            | (3.2   | )      |                          |   | 0.2    |   |   |   | (4.8 | ) |   |   | 0.6 |   |
|                                                           |   |                            | (14.0  | )      |                          |   | (4.3   | )      |   |   | (26.0 | ) |   |   | (6.7 | ) |
| Income before income      tax                                  |   |                            | 42.1   |   |                          |   | 87.3   |   |   |   | 23.8 |   |   |   | 47.5 |   |
| Income tax      expense                                        |   |                            | 16.3   |   |                          |   | 31.1   |   |   |   | 10.1 |   |   |   | 16.9 |   |
| Net Income                                                     |   | $                               | 25.8   |   |                          | $      | 56.2   |   |   | $      | 13.7 |   |   | $ | 30.6 |   |
|                                                           |   |                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to      condensed financial statements. |   |                            |   |   |                          |   |   |   |   |   |   |   |   |

----

Table of Contents

| CONDENSED STATEMENTS OF      SHAREHOLDER'S EQUITY (unaudited)  |   |   |   |   |              |   |   |
|----------------------------------------------------------------|--------|--------|--------|--------|-------------------|--------|--------|
| Alaska Airlines,      Inc.                                     |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |              |   |   |  |   |   |   |   |
|                                                           |   | Common |   |   | Capital in Excess |   |   | Accumulated Other |   |   | Retained |   |   |   |   |
| (in    millions)                                               |   | Stock  |   |   | of ParValue       |   |   | Comprehensive      Loss |   |   | Earnings |   |   | Total |   |
| Balances at December 31,      2008                             |   | $      | 0.0    |   |              | $      | 640.1  |   |   | $ | (328.3 | ) |   | $ | 283.2 |   |   | $ | 595.0 |   |
| Net income for the six months      ended June 30, 2009         |   |   |   |   |              |   |   |   |   |   |   | 13.7 |   |   |   | 13.7 |   |
| Other comprehensive income      (loss):                        |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related to marketable      securities:                         |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Change in fair      value                          |   |   |   |   |              |   |   |   |   |   | 12.0 |   |   |   |   |   |   |   |   |   |
|   Reclassification to      earnings                  |   |   |   |   |              |   |   |   |   |   | 0.3 |   |   |   |   |   |   |   |   |   |
|   Income tax      effect                             |   |   |   |   |              |   |   |   |   |   | (4.6 | ) |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |              |   |   |   |   |   | 7.7 |   |   |   |   |   |   |   | 7.7 |   |
|                                                           |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjustments related to employee      benefit plans:            |   |   |   |   |              |   |   |   |   |   | 17.1 |   |   |   |   |   |   |   |   |   |
|    Income tax      effect                       |   |   |   |   |              |   |   |   |   |   | (6.4 | ) |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |              |   |   |   |   |   | 10.7 |   |   |   |   |   |   |   | 10.7 |   |
| Total comprehensive      income                                |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   | 32.1 |   |
|                                                           |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock-based      compensation                                  |   |   |   |   |              |   | 6.6    |   |   |   |   |   |   |   |   |   |   |   | 6.6 |   |
| Balances at June 30,      2008                                 |   | $      | 0.0    |   |              | $      | 646.7  |   |   | $ | (309.9 | ) |   | $ | 296.9 |   |   | $ | 633.7 |   |
|                                                           |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |   |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 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)                                                                 |   | 2009                          |   |   | 2008   |   |
| Cash flows from operating      activities:                                       |   |                          |   |   |   |   |
| Net income                                                                       |   | $                             | 13.7   |   |   | $      | 30.6 |   |
| Adjustments to reconcile net      income to net cash                             |   |                          |   |   |   |   |   |   |
|  provided by operating      activities:                                     |   |                          |   |   |   |   |   |   |
|    Non-cash impact      of pilot contract transition costs        |   |                          | 15.5   |   |   |   | - |   |
|    Fleet transition      costs, including impairment charge       |   |                          | -      |   |   |   | 26.0 |   |
|    Depreciation and      amortization                             |   |                          | 87.5   |   |   |   | 80.4 |   |
|    Stock-based      compensation                                  |   |                          | 6.6    |   |   |   | 6.5 |   |
|    Changes in fair      values of open fuel hedge contracts       |   |                          | (38.9  | )      |   |   | (158.8 | ) |
|    Changes in      deferred income taxes                          |   |                          | 4.4    |   |   |   | 17.5 |   |
|    Changes in      receivables (including from related companies) |   |                          | (73.3  | )      |   |   | 37.4 |   |
|    Changes in      prepaid expenses and other current assets      |   |                          | 8.3    |   |   |   | (25.6 | ) |
|    Increase in air      traffic liability                         |   |                          | 48.8   |   |   |   | 167.4 |   |
|    Increase in      other current liabilities                     |   |                          | 19.1   |   |   |   | 21.2 |   |
|    Changes in      deferred revenue and other-net                 |   |                          | 20.8   |   |   |   | (10.5 | ) |
| Net cash provided by operating      activities                                   |   |                          | 112.5  |   |   |   | 192.1 |   |
| Cash flows from investing      activities:                                       |   |                          |   |   |   |   |   |   |
| Property and equipment      additions:                                           |   |                          |   |   |   |   |   |   |
|   Aircraft and aircraft      purchase deposits                         |   |                          | (242.1 | )      |   |   | (196.6 | ) |
|   Other flight      equipment                                          |   |                          | (17.4  | )      |   |   | (12.7 | ) |
|   Other property and      equipment                                    |   |                          | (19.0  | )      |   |   | (19.1 | ) |
| Total property and equipment      additions                                      |   |                          | (278.5 | )      |   |   | (228.4 | ) |
| Proceeds from disposition of      assets                                         |   |                          | 0.8    |   |   |   | 5.8 |   |
| Purchases of marketable      securities                                          |   |                          | (515.0 | )      |   |   | (474.1 | ) |
| Sales and maturities of marketable      securities                               |   |                          | 361.0  |   |   |   | 262.6 |   |
| Restricted deposits and      other                                               |   |                          | (4.1   | )      |   |   | 1.4 |   |
| Net cash used in investing      activities                                       |   |                          | (435.8 | )      |   |   | (432.7 | ) |
| Cash flows from financing      activities:                                       |   |                          |   |   |   |   |   |   |
| Proceeds from issuance of      long-term debt                                    |   |                          | 130.3  |   |   |   | 336.9 |   |
| Proceeds from sale-leaseback      transactions, net                              |   |                          | 230.0  |   |   |   | - |   |
| Long-term debt      payments                                                     |   |                          | (156.8 | )      |   |   | (121.5 | ) |
| Net cash provided by financing      activities                                   |   |                          | 203.5  |   |   |   | 215.4 |   |
| Net change in cash and cash      equivalents                                     |   |                          | (119.8 | )      |   |   | (25.2 | ) |
| Cash and cash equivalents at      beginning of year                              |   |                          | 283.0  |   |   |   | 204.3 |   |
| Cash and cash equivalents at end      of period                                  |   | $                             | 163.2  |   |   | $      | 179.1 |   |
| Supplemental disclosure of cash      paid during the period for:                 |   |                          |   |   |   |   |   |   |
|   Interest (net of      amount capitalized)                            |   | $                             | 42.0   |   |   | $      | 32.2 |   |
|   Income      taxes                                                    |   |                          | -      |   |   |   | 0.9 |   |
|                                                                             |   |                          |   |   |   |   |   |   |
| See accompanying notes to      condensed financial statements.                   |   |                          |   |   |   |   |   |   |

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|                           |   | Level 1 |   |   | Level 2 |   |    | Level 3 |   |   | Total   |   |
|--------------------------------|--------|--------------|--------|--------|--------------|--------|---------|--------------|--------|--------|---------|--------|
| Cash      and cash equivalents |   | $            | 163.2  |   |         | $      | — |         |   | $      | — |   |   | $ | 163.2 |   |
| Marketable      securities     |   |         | 107.1  |   |         |   | 851.4   |         |   |   | — |   |   |   | 958.5 |   |
| Total                          |   | $            | 270.3  |   |         | $      | 851.4   |         |   | $      | — |   |   | $ | 1,121.7 |   |
|                           |   |         |   |   |         |   |    |         |   |   |    |   |   |   |   |   |

|                                |   | June 30,2009 |   |   | December      31, 2008 |   |
|-------------------------------------|--------|--------------|--------|--------|------------------------|--------|
| Amortized      cost:                |   |         |   |   |                   |   |
| Government      securities/agencies |   | $            | 370.2  |   |                   | $      | 329.1 |   |
| Asset-backed      obligations       |   |         | 234.3  |   |                   |   | 198.0 |   |
| Other      corporate obligations    |   |         | 345.6  |   |                   |   | 263.7 |   |
|                                |   | $            | 950.1  |   |                   | $      | 790.8 |   |
| Fair      value:                    |   |         |   |   |                   |   |   |   |
| Government      securities/agencies |   | $            | 376.3  |   |                   | $      | 342.8 |   |
| Asset-backed      obligations       |   |         | 230.7  |   |                   |   | 187.7 |   |
| Other      corporate obligations    |   |         | 351.5  |   |                   |   | 263.8 |   |
|                                |   | $            | 958.5  |   |                   | $      | 794.3 |   |

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|                                |   |                          |   |   | Unrealized      Losses   |   |   |                        |   |   |                         |   |   |
|-------------------------------------|--------|-------------------------------|--------|--------|--------------------------|--------|--------|-----------------------------|--------|--------|------------------------------|--------|--------|
|                                |   | Unrealized      Gains in AOCI |   |   | Less      than 12 months |   |   | Greater      than 12 months |   |   | Total      Unrealized Losses |   |   | Less:      Credit Loss Recorded in Earnings |   |   | Net      Unrealized Losses in AOCI |   |   | Net      Unrealized Gains/(Losses) in AOCI |   |   | Fair      Value of Securities with Unrealized Losses |   |   |
| Government      Securities/Agencies |   | $                             | 6.4    |   |                     | $      | (0.3   | )                           |   | $      | --                           |   |   | $ | (0.3 | ) |   | $ | -- |   |   | $ | (0.3 | ) |   | $ | 6.1 |   |   | $ | 93.7 |   |
| Asset-backed      obligations       |   |                          | 2.3    |   |                     |   | (0.3   | )                           |   |   | (7.4                         | )      |   |   | (7.7 | ) |   |   | (1.8 | ) |   |   | (5.9 | ) |   |   | (3.6 | ) |   |   | 52.0 |   |
| Other      corporate obligations    |   |                          | 6.6    |   |                     |   | (0.4   | )                           |   |   | (0.3                         | )      |   |   | (0.7 | ) |   |   | -- |   |   |   | (0.7 | ) |   |   | 5.9 |   |   |   | 79.6 |   |
| Total                               |   | $                             | 15.3   |   |                     | $      | (1.0   | )                           |   | $      | (7.7                         | )      |   | $ | (8.7 | ) |   | $ | (1.8 | ) |   |   | (6.9 | ) |   | $ | 8.4 |   |   | $ | 225.3 |   |

|                                     |   |                 |    |   |            |   |
|------------------------------------------|--------|----------------------|---------|--------|-----------------|--------|
|                                     |   | Carrying      Amount |    |   | Fair      Value |   |
| Long-term      debt at June 30, 2009     |   | $                    | 1,532.7 |   |            | $      | 1,469.4 |   |
| Long-term      debt at December 31, 2008 |   | $                    | 1,559.2 |   |            | $      | 1,696.9 |   |

|                                           |   | Three      Months Ended June 30 |   |   | Six      Months Ended June 30 |   |
|------------------------------------------------|--------|---------------------------------|--------|--------|-------------------------------|--------|
|                                           |   | 2009                            |   |   | 2008                          |   |   | 2009 |   |   | 2008 |   |
| Raw      or “into-plane” fuel cost |   | $                               | 132.3  |   |                          | $      | 326.6 |   |   | $ | 251.1 |   |   | $ | 584.3 |   |
| Impact      of hedging activity                |   |                            | (24.9  | )      |                          |   | (175.4 | ) |   |   | (11.8 | ) |   |   | (199.4 | ) |
| Aircraft      fuel expense                     |   | $                               | 107.4  |   |                          | $      | 151.2 |   |   | $ | 239.3 |   |   | $ | 384.9 |   |

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|                            | Approximate      % of Expected Fuel      Requirements | Gallons      Hedged(in      millions) | Approximate      Crude Oil Price per      Barrel |
|---------------------------------|-------------------------------------------------------|---------------------------------------|--------------------------------------------------|
| Third      Quarter 2009         | 50%                                                   | 39.8                                  | $76                                              |
| Fourth      Quarter 2009        | 50%                                                   | 36.1                                  | $76                                              |
|   Full      Year 2009 | 50%                                                   | 75.9                                  | $76                                              |
| First      Quarter 2010         | 47%                                                   | 33.2                                  | $68                                              |
| Second      Quarter 2010        | 48%                                                   | 35.7                                  | $68                                              |
| Third      Quarter 2010         | 46%                                                   | 36.9                                  | $72                                              |
| Fourth      Quarter 2010        | 34%                                                   | 24.9                                  | $78                                              |
|   Full      Year 2010 | 44%                                                   | 130.7                                 | $71                                              |
| First      Quarter 2011         | 27%                                                   | 19.7                                  | $86                                              |
| Second      Quarter 2011        | 20%                                                   | 15.3                                  | $76                                              |
| Third      Quarter 2011         | 17%                                                   | 13.6                                  | $79                                              |
| Fourth      Quarter 2011        | 10%                                                   | 7.5                                   | $78                                              |
|   Full      Year 2011 | 18%                                                   | 56.1                                  | $81                                              |
| First      Quarter 2012         | 5%                                                    | 3.8                                   | $87                                              |
|   Full      Year 2012 | 1%                                                    | 3.8                                   | $87                                              |

|                                              |   | June      30, 2009 |   |   | December      31, 2008 |   |
|---------------------------------------------------|--------|--------------------|--------|--------|------------------------|--------|
| Crude      oil call options or “caps” |   | $                  | 65.8   |   |                   | $      | 43.5 |   |
| Crude      oil collar contracts                   |   |               | (2.2   | )      |                   |   | (20.0 | ) |
| Refining      margin swap contracts               |   |               | (1.2   | )      |                   |   | --- |   |
|    Total                           |   | $                  | 62.4   |   |                   | $      | 23.5 |   |

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|                                                |   | June      30, 2009 |    |   | December      31, 2008 |   |
|-----------------------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Fixed-rate      notes payable due through 2022      |   | $                  | 1,207.6 |   |                   | $      | 1,192.1 |   |
| Variable-rate      notes payable due through 2019   |   |               | 301.9   |   |                   |   | 252.2 |   |
| Bank      line-of-credit facility expiring in 2010  |   |               | --      |   |                   |   | 75.0 |   |
| Pre-delivery      payment facility expiring in 2011 |   |               | 23.2    |   |                   |   | 39.9 |   |
| Long-term      debt                                 |   |               | 1,532.7 |   |                   |   | 1,559.2 |   |
| Less      current portion                           |   |               | (145.5  | )      |                   |   | (225.1 | ) |
|                                                |   | $                  | 1,387.2 |   |                   | $      | 1,334.1 |   |

|                                    |   | Three      Months Ended June 30 |   |   | Six      Months Ended June 30 |   |
|-----------------------------------------|--------|---------------------------------|--------|--------|-------------------------------|--------|
|                                    |   | 2009                            |   |   | 2008                          |   |   | 2009 |   |   | 2008 |   |
| Service      cost                       |   | $                               | 11.1   |   |                          | $      | 11.1 |   |   | $ | 22.2 |   |   | $ | 23.3 |   |
| Interest      cost                      |   |                            | 16.7   |   |                          |   | 15.6 |   |   |   | 33.4 |   |   |   | 31.3 |   |
| Expected      return on assets          |   |                            | (12.8  | )      |                          |   | (18.0 | ) |   |   | (25.6 | ) |   |   | (35.9 | ) |
| Amortization      of prior service cost |   |                            | 1.1    |   |                          |   | 1.1 |   |   |   | 2.2 |   |   |   | 2.2 |   |
| Actuarial      loss                     |   |                            | 7.2    |   |                          |   | 1.4 |   |   |   | 14.4 |   |   |   | 2.8 |   |
| Net      pension expense                |   | $                               | 23.3   |   |                          | $      | 11.2 |   |   | $ | 46.6 |   |   | $ | 23.7 |   |

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|                                                        |   | June 30,      2009 |   |   | December      31, 2008 |   |
|-------------------------------------------------------------|--------|--------------------|--------|--------|------------------------|--------|
| Restricted      deposits (primarily restricted investments) |   | $                  | 61.6   |   |                   | $      | 57.4 |   |
| Deferred      costs and other*                              |   |               | 17.1   |   |                   |   | 16.0 |   |
|                                                        |   | $                  | 78.7   |   |                   | $      | 73.4 |   |

|                                              |   | June      30, 2009 |   |   | December      31, 2008 |   |
|---------------------------------------------------|--------|--------------------|--------|--------|------------------------|--------|
| Current      Liabilities:                         |   |               |   |   |                   |   |
| Other      accrued liabilities                    |   | $                  | 282.0  |   |                   | $      | 280.4 |   |
| Other      Liabilities and Credits (non-current): |   |               |   |   |                   |   |   |   |
| Deferred      revenue                             |   |               | 409.8  |   |                   |   | 394.1 |   |
| Other      liabilities                            |   |               | 12.3   |   |                   |   | 15.9 |   |
|                                              |   | $                  | 704.1  |   |                   | $      | 690.4 |   |

|                                                                                                                                                                                                                                                                                                                                                                         |   | Three      Months Ended June 30 |   |   | Six      Months Ended June 30 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|-------------------------------|--------|
|                                                                                                               |   | 2009                            |   |   | 2008                          |   |   | 2009 |   |   | 2008 |   |
| Passenger      revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                               | 45.3   |   |                          | $      | 35.5 |   |   | $ | 81.6 |   |   | $ | 60.9 |   |
| Passenger      revenue – purchased capacity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                            | 1.0    |   |                          |   | -- |   |   |   | 1.9 |   |   |   | -- |   |
| Other      - net revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                            | 45.8   |   |                          |   |  24.4 |   |   |   | 70.3 |   |   |   | 51.1 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                               | 92.1   |   |                          | $      | 59.9 |   |   | $ | 153.8 |   |   | $ | 112.0 |   |

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|                                                                                                                                                                                                                                                                                                                                                              |   | Three Months      Ended June      30 |   |   | Six      Months Ended June 30 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------|--------|
|                                                                                                              |   | 2009                                 |   |   | 2008                          |   |   | 2009 |   |   | 2008 |   |
| Stock      options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                    | 0.6    |   |                          | $      | 0.8 |   |   | $ | 2.6 |   |   | $ | 2.7 |   |
| Restricted      stock units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                 | 0.9    |   |                          |   | 1.2 |   |   |   | 3.4 |   |   |   | 3.2 |   |
| Performance      share units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                 | ---    |   |                          |   | (0.5 | ) |   |   | --- |   |   |   | (0.3 | ) |
| Employee      stock purchase plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                 | 0.4    |   |                          |   | 0.3 |   |   |   | 0.6 |   |   |   | 0.9 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $                                    | 1.9    |   |                          | $      | 1.8 |   |   | $ | 6.6 |   |   | $ | 6.5 |   |

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|                          |   |                                               |    |   |       |   |   |              |   |
|-------------------------------|--------|----------------------------------------------------|---------|--------|------------|--------|--------|-------------------|--------|
|                          |   | Six Months Ended June      30, 2008 |    |
|                          |   | As Originally      Reported                   |    |   | Adjustment |   |   | As Corrected |   |
| Wages      and benefits       |   | $                                                  | 374.5   |   |       | $      | 1.9    |              |   | $ | 376.4 |   |
| Total      Operating Expenses |   |                                               | 1,497.7 |   |       |   | 1.9    |              |   |   | 1,499.6 |   |
| Operating      Income         |   |                                               | 56.1    |   |       |   | (1.9   | )                 |   |   | 54.2 |   |
| Income      before income tax |   |                                               | 49.4    |   |       |   | (1.9   | )                 |   |   | 47.5 |   |
| Net      Income               |   | $                                                  | 31.8    |   |       | $      | (1.2   | )                 |   | $ | 30.6 |   |

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ITEM2.   MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

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

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

|   | · | Liquidity and      Capital Resources –      as we are filing this Form 10-Q with reduced disclosures in accordance      with General Instruction H(1)(a) and (b) of Form 10-Q, we do not discuss      liquidity and capital resources.  Liquidity and capital      resources are managed at an Air Group level.  As such, we would      refer the reader to Alaska Air Group, Inc.’s Form 10-Q filed on August 7,      2009 for an analysis of cash flows, liquidity, and capital      resources. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Operating revenues declined by      8.7% driven by the continued demand weakness in the midst of the current      economic recession.  In the second quarter, mainline passenger      traffic fell by 5.3% and unit operating revenue declined by      2.2%.  Although passenger unit revenue      was down 5.9% for      mainline operations, this compares to a domestic industry average decline      of 14.5% compared to the second quarter of 2008.  We believe      that we are making the right decisions with respect to capacity reductions      and redeployments into higher-demand markets.  We also have the      flexibility to substitute smaller Horizon aircraft in lower-demand markets      that historically may have been served by larger    jets. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | We entered into a new four-year      agreement with pilots in the second quarter.  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. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Economic fuel averaged $1.84 per      gallon in the second quarter of 2009, compared to $3.24 in      2008.  This, along with a decline in consumption, resulted in a      $139.7 million reduction in our economic fuel expense compared to the      second quarter of 2008. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Average pilot wages increased      approximately 14% effective April 1, 2009.  The contract also      provides for step increases of 1.5% on the first two anniversary dates of      the contract and 1.8% on the third  anniversary. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Pilots now participate in Air      Group’s Performance Based Pay (PBP) Plan. PBP is an incentive program      that rewards participants a targeted percentage of their pay based on the      achievement of goals established annually by Air Group’s Board of      Directors.  These goals include metrics around Air Group      profitability, non-fuel unit costs, safety, employee engagement, and      on-time performance.  The PBP Plan also covers Alaska’s dispatchers, flight attendants,      and non-union employees and employees classified as      supervisors and above at Horizon. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The defined-benefit pension plan      for pilots is      now closed to new      entrants.  Newly hired pilots will participate in a      defined-contribution plan that includes a contribution by Alaska equal to 13.5% of eligible      wages.  Incumbents have the option of remaining in the      defined-benefit pension plan or moving to a new blended option with an      enhanced defined-contribution element.  The election must be      made by January 1, 2010. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Upon retirement, pilots will be      allowed to receive a cash payment of an amount equivalent to 25% of their      accrued sick leave balance multiplied by their hourly      rate. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The new contract provides for      better productivity and flexibility.  For example, there are      changes to reserve flying provisions that allow for improved scheduling      efficiency, language that allows for pilots to fly more than the current      85-hour monthly limit for pay, and exceptions that allow us to suspend      certain restrictions in irregular operations.  We expect to      realize savings from these productivity enhancements when we resume      capacity growth. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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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 2009, we recognized net mark-to-market gains of $41.3 million ($25.8 million after tax), compared to      net gains of $128.7 million ($80.6 million after tax) in      the same period of      2008. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The first six months of 2009      include the new pilot contract transition costs of $35.8 million ($22.3      million after tax) discussed      previously. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The first six months of 2008      include fleet transition costs of $26.0 million ($16.2 million after tax) related to the      transition out of the MD-80fleet. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Financial      and Statistical Data (unaudited)        |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |
|--------------------------------------------------------|--------|---------------------------------|--------|--------|-------------------------------|--------|--------|----------|--------|--------|-----------|--------|--------|--------|---------|--------|----------|--------|
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |
|                                                   |   | Three Months Ended June      30 |   |   | Six Months Ended June      30 |   |
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |
| Financial Data (in      millions):                     |   | 2009                            |   |   | 2008                          |   |   | % Change |   |   | 2009      |   |   | 2008   |    |   | % Change |   |
| Operating      Revenues:                               |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |
| Passenger                                              |   | $                               | 602.5  |   |                          | $      | 682.7  |     |   |   | (11.7     | )      |   | $      | 1,142.3 |   |     | $      | 1,290.0 |   |   |   | (11.4 | ) |
| Freight and      mail                                  |   |                            | 24.2   |   |                          |   | 26.6   |     |   |   | (9.0      | )      |   |   | 42.5    |   |     |   | 47.9 |   |   |   | (11.3 | ) |
| Other - net                                            |   |                            | 54.9   |   |                          |   | 33.3   |     |   |   | 64.9      |   |   |   | 88.1    |   |     |   | 67.7 |   |   |   | 30.1 |   |
| Total mainline operating      revenues                 |   |                            | 681.6  |   |                          |   | 742.6  |     |   |   | (8.2      | )      |   |   | 1,272.9 |   |     |   | 1,405.6 |   |   |   | (9.4 | ) |
| Passenger - purchased      capacity                    |   |                            | 67.7   |   |                          |   | 77.8   |     |   |   | (13.0     | )      |   |   | 129.5   |   |     |   | 148.2 |   |   |   | (12.6 | ) |
| Total Operating      Revenues                          |   |                            | 749.3  |   |                          |   | 820.4  |     |   |   | (8.7      | )      |   |   | 1,402.4 |   |     |   | 1,553.8 |   |   |   | (9.7 | ) |
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| Operating      Expenses:                               |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| Wages and      benefits                                |   |                            | 198.4  |   |                          |   | 184.3  |     |   |   | 7.7       |   |   |   | 395.8   |   |     |   | 376.4 |   |   |   | 5.2 |   |
| Variable incentive      pay                            |   |                            | 16.1   |   |                          |   | 3.3    |     |   |   | 387.9     |   |   |   | 23.2    |   |     |   | 5.9 |   |   |   | 293.2 |   |
| Aircraft fuel, including hedging      gains and losses |   |                            | 107.4  |   |                          |   | 151.2  |     |   |   | (29.0     | )      |   |   | 239.3   |   |     |   | 384.9 |   |   |   | (37.8 | ) |
| Aircraft      maintenance                              |   |                            | 46.6   |   |                          |   | 37.4   |     |   |   | 24.6      |   |   |   | 92.9    |   |     |   | 79.5 |   |   |   | 16.9 |   |
| Aircraft    rent                                       |   |                            | 28.1   |   |                          |   | 27.9   |     |   |   | 0.7       |   |   |   | 54.6    |   |     |   | 56.1 |   |   |   | (2.7 | ) |
| Landing fees and other      rentals                    |   |                            | 40.6   |   |                          |   | 42.7   |     |   |   | (4.9      | )      |   |   | 81.4    |   |     |   | 84.6 |   |   |   | (3.8 | ) |
| Contracted      services                               |   |                            | 28.4   |   |                          |   | 33.9   |     |   |   | (16.2     | )      |   |   | 58.9    |   |     |   | 68.6 |   |   |   | (14.1 | ) |
| Selling      expenses                                  |   |                            | 28.3   |   |                          |   | 36.0   |     |   |   | (21.4     | )      |   |   | 47.4    |   |     |   | 62.5 |   |   |   | (24.2 | ) |
| Depreciation and      amortization                     |   |                            | 44.2   |   |                          |   | 41.6   |     |   |   | 6.3       |   |   |   | 87.5    |   |     |   | 80.4 |   |   |   | 8.8 |   |
| Food and beverage      service                         |   |                            | 11.9   |   |                          |   | 12.6   |     |   |   | (5.6      | )      |   |   | 22.9    |   |     |   | 24.3 |   |   |   | (5.8 | ) |
| Other                                                  |   |                            | 38.5   |   |                          |   | 47.4   |     |   |   | (18.8     | )      |   |   | 81.3    |   |     |   | 89.2 |   |   |   | (8.9 | ) |
| New pilot contract transition      costs               |   |                            | 35.8   |   |                          |   | -      |     |   | NM     |      |   |   | 35.8   |    |   |     | -      |   |   | NM |   |
| Fleet transition costs -      MD-80                    |   |                            | -      |   |                          |   | 26.0   |     |   | NM     |      |   |   | -      |    |   |     | 26.0   |   |   | NM |   |
| Total mainline operating      expenses                 |   |                            | 624.3  |   |                          |   | 644.3  |     |   |   | (3.1      | )      |   |   | 1,221.0 |   |     |   | 1,338.4 |   |   |   | (8.8 | ) |
| Purchased capacity      costs                          |   |                            | 68.9   |   |                          |   | 84.5   |     |   |   | (18.5     | )      |   |   | 131.6   |   |     |   | 161.2 |   |   |   | (18.4 | ) |
| Total Operating      Expenses                          |   |                            | 693.2  |   |                          |   | 728.8  |     |   |   | (4.9      | )      |   |   | 1,352.6 |   |     |   | 1,499.6 |   |   |   | (9.8 | ) |
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| Operating      Income                                  |   |                            | 56.1   |   |                          |   | 91.6   |     |   |   |      |   |   |   | 49.8    |   |     |   | 54.2 |   |   |   |   |   |
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| Interest    income                                     |   |                            | 9.5    |   |                          |   | 12.3   |     |   |   |      |   |   |   | 19.6    |   |     |   | 25.4 |   |   |   |   |   |
| Interest      expense                                  |   |                            | (22.1  | )      |                          |   | (22.2  | )        |   |   |      |   |   |   | (45.1   | )      |     |   | (44.0 | ) |   |   |   |   |
| Interest      capitalized                              |   |                            | 1.8    |   |                          |   | 5.4    |     |   |   |      |   |   |   | 4.3     |   |     |   | 11.3 |   |   |   |   |   |
| Other - net                                            |   |                            | (3.2   | )      |                          |   | 0.2    |     |   |   |      |   |   |   | (4.8    | )      |     |   | 0.6 |   |   |   |   |   |
|                                                   |   |                            | (14.0  | )      |                          |   | (4.3   | )        |   |   |      |   |   |   | (26.0   | )      |     |   | (6.7 | ) |   |   |   |   |
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| Income Before Income      Tax                          |   | $                               | 42.1   |   |                          | $      | 87.3   |     |   |   |      |   |   | $      | 23.8    |   |     | $      | 47.5 |   |   |   |   |   |
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| Mainline Operating      Statistics:                    |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| Revenue passengers      (000)                          |   |                            | 3,983  |   |                          |   | 4,425  |     |   |   | (10.0     | )      |   |   | 7,556   |   |     |   | 8,505 |   |   |   | (11.2 | ) |
| RPMs (000,000)      "traffic"                          |   |                            | 4,613  |   |                          |   | 4,872  |     |   |   | (5.3      | )      |   |   | 8,792   |   |     |   | 9,398 |   |   |   | (6.4 | ) |
| ASMs (000,000)      "capacity"                         |   |                            | 5,852  |   |                          |   | 6,238  |     |   |   | (6.2      | )      |   |   | 11,372  |   |     |   | 12,322 |   |   |   | (7.7 | ) |
| Passenger load      factor                             |   |                            | 78.8   | %      |                          |   | 78.1   | %        |   | 0.7    | pts       |   |   | 77.3   | %       |   |     | 76.3   | % |   | 1.0 |  pts  |
| Yield per passenger      mile                          |   |                            | 13.06  | ¢ |                          |   | 14.01  | ¢   |   |   | (6.8      | )      |   |   | 12.99   | ¢ |     |   | 13.73 | ¢ |   |   | (5.3 | ) |
| Operating revenue per ASM      (RASM)                  |   |                            | 11.65  | ¢ |                          |   | 11.90  | ¢   |   |   | (2.2      | )      |   |   | 11.19   | ¢ |     |   | 11.41 | ¢ |   |   | (1.9 | ) |
| Passenger revenue per      ASM                         |   |                            | 10.30  | ¢ |                          |   | 10.94  | ¢   |   |   | (5.9      | )      |   |   | 10.04   | ¢ |     |   | 10.47 | ¢ |   |   | (4.1 | ) |
| Operating expenses per      ASM                        |   |                            | 10.67  | ¢ |                          |   | 10.33  | ¢   |   |   | 3.3       |   |   |   | 10.74   | ¢ |     |   | 10.86 | ¢ |   |   | (1.1 | ) |
| Aircraft fuel cost per      ASM                        |   |                            | 1.84   | ¢ |                          |   | 2.42   | ¢   |   |   | (24.0     | )      |   |   | 2.11    | ¢ |     |   | 3.13 | ¢ |   |   | (32.6 | ) |
| New pilot contract transition      costs per ASM       |   |                            | 0.61   | ¢ |                          |   | 0.00   | ¢   |   | NM     |      |   |   | 0.31   | ¢  |   |     | 0.00   | ¢ |   | NM |   |
| Fleet transition charges per      ASM                  |   |                            | 0.00   | ¢ |                          |   | 0.42   | ¢   |   | NM     |      |   |   | 0.00   | ¢  |   |     | 0.21   | ¢ |   | NM |   |
| Aircraft fuel cost per      gallon                     |   | $                               | 1.41   |   |                          | $      | 1.75   |     |   |   | (19.4     | )      |   | $      | 1.60    |   |     | $      | 2.23 |   |   |   | (28.3 | ) |
| Economic fuel cost per      gallon                     |   | $                               | 1.84   |   |                          | $      | 3.24   |     |   |   | (43.2     | )      |   | $      | 1.88    |   |     | $      | 2.98 |   |   |   | (36.9 | ) |
| Fuel gallons      (000,000)                            |   |                            | 76.5   |   |                          |   | 86.4   |     |   |   | (11.5     | )      |   |   | 149.8   |   |     |   | 172.3 |   |   |   | (13.1 | ) |
| Average number of full-time      equivalent employees  |   |                            | 8,937  |   |                          |   | 9,880  |     |   |   | (9.5      | )      |   |   | 8,979   |   |     |   | 9,881 |   |   |   | (9.1 | ) |
| Aircraft utilization (blk      hrs/day)                |   |                            | 9.9    |   |                          |   | 10.9   |     |   |   | (9.2      | )      |   |   | 9.9     |   |     |   | 10.8 |   |   |   | (8.3 | ) |
| Average aircraft stage length      (miles)             |   |                            | 1,020  |   |                          |   | 974    |     |   |   | 4.7       |   |   |   | 1,018   |   |     |   | 971 |   |   |   | 4.8 |   |
| Operating fleet at      period-end                     |   |                            | 116    |   |                          |   | 115    |     |   |   | 1 a/c     |   |   |   | 116     |   |     |   | 115 |   |   |   | 1 a/c |   |
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| Purchased Capacity Operating      Statistics:          |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| RPMs    (000,000)                                      |   |                            | 264    |   |                          |   | 302    |     |   |   | (12.6     | )      |   |   | 479     |   |     |   | 569 |   |   |   | (15.8 | ) |
| ASMs    (000,000)                                      |   |                            | 359    |   |                          |   | 399    |     |   |   | (10.0     | )      |   |   | 675     |   |     |   | 762 |   |   |   | (11.4 | ) |
| Passenger load      factor                             |   |                            | 73.5   | %      |                          |   | 75.7   | %        |   | (2.2)  | pts  |   |   | 71.0   | %       |   |     | 74.7   | % |   | (3.7) | pts  |
| Yield per passenger      mile                          |   |                            | 25.64  | ¢ |                          |   | 25.76  | ¢   |   |   | (0.5      | )      |   |   | 27.04   | ¢ |     |   | 26.05 | ¢ |   |   | 3.8 |   |
| Operating revenue per      ASM                         |   |                            | 18.86  | ¢ |                          |   | 19.50  | ¢   |   |   | (3.3      | )      |   |   | 19.19   | ¢ |     |   | 19.45 | ¢ |   |   | (1.4 | ) |
| Operating expenses per      ASM                        |   |                            | 19.19  | ¢ |                          |   | 21.18  | ¢   |   |   | (9.4      | )      |   |   | 19.50   | ¢ |     |   | 21.15 | ¢ |   |   | (7.8 | ) |
|                                                   |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |
| NM      = Not Meaningful                               |   |                            |   |   |                          |   |   |     |   |   |      |   |   |   |    |   |     |   |   |   |   |   |   |   |

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|                                        |   | Six Months Ended June      30 |    |
|---------------------------------------------|--------|-------------------------------|---------|
| (in      millions)                          |   | 2009                          |    |   | 2008 |   |   | % Change |   |
| Passenger revenue -      mainline           |   | $                             | 1,142.3 |   |   | $ | 1,290.0 |   |   |   | (11.4 | ) |
| Freight and      mail                       |   |                          | 42.5    |   |   |   | 47.9 |   |   |   | (11.3 | ) |
| Other - net                                 |   |                          | 88.1    |   |   |   | 67.7 |   |   |   | 30.1 |   |
| Total mainline      revenues                |   | $                             | 1,272.9 |   |   | $ | 1,405.6 |   |   |   | (9.4 | ) |
| Passenger revenue - purchased      capacity |   |                          | 129.5   |   |   |   | 148.2 |   |   |   | (12.6 | ) |
| Total operating      revenues               |   | $                             | 1,402.4 |   |   | $ | 1,553.8 |   |   |   | (9.7 | ) |

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|                                       |   | Six Months Ended June      30 |    |
|--------------------------------------------|--------|-------------------------------|---------|
| Operating      Expenses (in      millions) |   | 2009                          |    |   | 2008 |   |   | % Change |   |
| Mainline                                   |   | $                             | 1,221.0 |   |   | $ | 1,338.4 |   |   |   | (8.8 | ) |
| Purchased capacity      costs              |   |                          | 131.6   |   |   |   | 161.2 |   |   |   | (18.4 | ) |
| Total operating      expenses              |   | $                             | 1,352.6 |   |   | $ | 1,499.6 |   |   |   | (9.8 | ) |

|                                                      |   | Six Months Ended June      30 |   |
|-----------------------------------------------------------|--------|-------------------------------|--------|
| (in    millions)                                          |   | 2009                          |   |   | 2008 |   |   | % Change |   |
| Wages                                                     |   | $                             | 268.5  |   |   | $ | 275.2 |   |   |   | (2.4 | ) |
| Pension and defined-contribution      retirement benefits |   |                          | 58.4   |   |   |   | 34.3 |   |   |   | 70.3 |   |
| Medical      benefits                                     |   |                          | 40.3   |   |   |   | 37.8 |   |   |   | 6.6 |   |
| Other benefits and payroll      taxes                     |   |                          | 28.6   |   |   |   | 29.1 |   |   |   | (1.7 | ) |
| Total wages and      benefits                             |   | $                             | 395.8  |   |   | $ | 376.4 |   |   |   | 5.2 |   |

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|                                                                                                   |   | Six Months Ended June      30 |   |
|--------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
| (in millions, except per-gallon      amounts)                                                          |   | 2009                          |   |   | 2008 |   |   | % Change |   |
| Fuel gallons      consumed                                                                             |   |                          | 149.8  |   |   |   | 172.3 |   |   |   | (13.1 | ) |
| Raw price per      gallon                                                                              |   | $                             | 1.68   |   |   | $ | 3.39 |   |   |   | (50.4 | ) |
| Total raw fuel      expense                                                                            |   | $                             | 251.1  |   |   | $ | 584.3 |   |   |   | (57.0 | ) |
| Net impact on fuel expense from      (gains) and losses arising from fuel-hedging      activities |   |                          | (11.8  | ) |   |   | (199.4 | ) |   | NM |   |
| Aircraft fuel      expense                                                                             |   | $                             | 239.3  |   |   | $ | 384.9 |   |   |   | (37.8 | ) |

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|                                                                                                  |   | Six Months Ended June      30 |   |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
| (in millions, except per-gallon      amounts)                                                         |   | 2009                          |   |   | 2008 |   |   | % Change |   |
| Raw fuel      expense                                                                                 |   | $                             | 251.1  |   |   | $ | 584.3 |   |   |   | (57.0 | ) |
| Plus or minus: net of cash      received from settled hedges and premium expense      recognized |   |                          | 29.5   |   |   |   | (70.7 | ) |   | NM |   |
| Economic fuel      expense                                                                            |   | $                             | 280.6  |   |   | $ | 513.6 |   |   |   | (45.4 | ) |
| Fuel gallons      consumed                                                                            |   |                          | 149.8  |   |   |   | 172.3 |   |   |   | (13.1 | ) |
| Economic fuel cost per      gallon                                                                    |   | $                             | 1.88   |   |   | $ | 2.98 |   |   |   | (36.9 | ) |

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|                                                  |   | Six Months Ended June      30 |   |
|-------------------------------------------------------|--------|-------------------------------|--------|
|                                                  |   | 2009                          |   |   | 2008 |   |   | % Change |   |
| Total mainline operating expenses      per ASM (CASM) |   |                          | 10.74  | ¢ |   |   | 10.86 | ¢ |   |   | (1.1 | ) |
| CASM includes the following      components:          |   |                          |   |   |   |   |   |   |   |   |   |   |
| Aircraft fuel cost per      ASM                       |   |                          | 2.11   | ¢ |   |   | 3.13 | ¢ |   |   | (32.6 | ) |
| New pilot contract transition      costs per ASM      |   |                          | 0.31   | ¢ |   |   | 0.00 | ¢ |   | NM |   |
| Fleet transition costs per      ASM                   |   |                          | 0.00   | ¢ |   |   | 0.21 | ¢ |   | NM |   |

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|   | · | 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. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Mainline cost per ASM excluding      fuel and certain special items is one of the most important measures used      by management and by the Air Group Board of Directors in assessing      quarterly and annual cost performance.  These decision-makers      evaluate operating results of the “mainline” operation, which includes the      operation of the B737 fleet branded in Alaska Airlines      livery.  The revenue and expenses associated with purchased      capacity are evaluatedseparately. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Mainline cost per ASM excluding fuel      (and other items as specified in our plan documents) is an important      metric for the employee incentive plan that covers company management and      certain other employeegroups. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | Disclosure      of the individual impact of certain noted items provides investors the      ability to measure and monitor performance both with and without these      special items. We believe that disclosing the impact of certain items,      such as fleet transition costs and new pilot contract transition costs, is      important because it provides information on significant items that are      not necessarily indicative of future performance. Industry analysts and      investors consistently measure our performance without these items for      better comparability between periods and among other    airlines. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Although we disclose our      “mainline” passenger unit revenue, we do not (nor are we able to) evaluate      mainline unit revenue excluding the impact that changes in fuel costs have      had on ticket prices.  Fuel expense represents a large      percentage of      our total mainline      operating expenses.  Fluctuations in fuel prices often drive      changes in unit revenue in the mid-to-long term.  Although we      believe it is useful to evaluate non-fuel unit costs for the reasons noted      above, we would caution readers of these financial statements not to place      undue reliance on unit costs excluding fuel as a measure or predictor of      future profitability because of the significant impact of fuel costs on      our business. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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EXHIBI

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

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