# FORM 10-Q

# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

|[X] | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT           OF 1934.
|--- | --------------------------------------------------------------------------------------------------

| | For
the quarterly period ended June 30, 2004
| | --------------------------------------------

|[   ] | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT           OF 1934.
|----- | ---------------------------------------------------------------------------------------------------

| | For
the transition period from ___________________to____________________
| | ------------------------------------------------------------------------

| | Commission
file number           1-13934
| | ----------------------------------------

MIDWEST AIR GROUP, INC.
(Exact name of registrant as specified in its charter)

|                                |                                     
|------------------------------- | ------------------------------------
|Wisconsin                       | 39-1828757                          
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization) 

6744 South Howell
Avenue Oak Creek, Wisconsin 53154(Address of principal executive offices)    (Zip code)

414-570-4000(Registrants
telephone number, including area code)

Indicate by checkmark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X    No

Indicate by checkmark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   X    No

As of July 31, 2004, there were
17,421,811 shares of Common Stock, $.01 par value, of the registrant outstanding.

---

# MIDWEST AIR GROUP,
INC. FORM 10-Q For the period ended June 30, 2004

# INDEX

|           |                                                                                       |     
|---------- | ------------------------------------------------------------------------------------- | ----
|           | PART I - FINANCIAL INFORMATION                                                        | Page
|Item 1.    | Financial Statements (Unaudited)                                                     
|           | Condensed Consolidated Statements of Operations                                       | 2   
|           | Condensed Consolidated Balance Sheets                                                 | 3   
|           | Condensed Consolidated Statements of Cash Flows                                       | 4   
|           | Notes to Condensed Consolidated Financial Statements                                  | 5   
|Item 2.    | Management's Discussion and Analysis of Results of Operations and Financial Condition | 11  
|Item 3.    | Quantitative and Qualitative Disclosures about Market Risk                            | 25  
|Item 4.    | Controls and Procedures                                                               | 25  
|           | PART II - OTHER INFORMATION                                                          
|Item 4.    | Submission of Matters to a Vote of Security Holders                                   | 26  
|Item 6.    | Exhibits and Reports on Form 8-K                                                      | 27  
|SIGNATURES |                                                                                       | 28  

1

---

# PART I - FINANCIAL
INFORMATION Item 1. Financial Statements (unaudited)

# MIDWEST AIR GROUP,
INC.              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS           (Dollars in
thousands, except per share amounts)                   (Unaudited)

|                                                   | Three Months Ended
June 30, | Six Months Ended
June 30,
|-------------------------------------------------- | --------------------------- | -------------------------
|
|Operating revenues:                                |                             |                          
|Passenger service                                  |                             |                          
|Cargo                                              |                             |                          
|Other                                              |                             |                          
|                                                   |                             |                          
|Total operating revenues                           |                             |                          
|                                                   |                             |                          
|                                                   |                             |                          
|Operating expenses:                                |                             |                          
|Salaries, wages and benefits                       |                             |                          
|Aircraft fuel and oil                              |                             |                          
|Commissions                                        |                             |                          
|Dining services                                    |                             |                          
|Station rental, landing and other fees             |                             |                          
|Aircraft maintenance materials and repairs         |                             |                          
|Depreciation and amortization                      |                             |                          
|Aircraft rentals                                   |                             |                          
|Other                                              |                             |                          
|                                                   |                             |                          
|Total operating expenses                           |                             |                          
|                                                   |                             |                          
|Operating loss                                     |                             |                          
|                                                   |                             |                          
|Other (expense) income:                            |                             |                          
|Interest income                                    |                             |                          
|Interest expense                                   |                             |                          
|Other, net                                         |                             |                          
|                                                   |                             |                          
|Total other (expense) income                       |                             |                          
|                                                   |                             |                          
|                                                   |                             |                          
|(Loss) income before income tax provision (credit) |                             |                          
|Income tax provision (credit)                      |                             |                          
|                                                   |                             |                          
|Net (loss) income                                  |                             |                          
|                                                   |                             |                          
|(Loss) income per common share  basic             |                             |                          
|                                                   |                             |                          
|(Loss) income per common share  diluted           |                             |                          
|                                                   |                             |                          
|Weighted average shares  basic                    |                             |                          
|Weighted average shares  diluted                  |                             |                          

See notes to unaudited
condensed consolidated financial statements.

2

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# MIDWEST AIR GROUP,
INC.                     CONDENSED CONSOLIDATED BALANCE SHEETS         (Dollars in
thousands, except per share amounts)                     (Unaudited)

|ASSETS                                                           | June 30,
2004 | December 31,
2003
|---------------------------------------------------------------- | ------------- | -----------------
|Current assets:                                                  |               |                  
|Cash and cash equivalents                                        |               |                  
|Accounts receivable, net                                         |               |                  
|Inventories                                                      |               |                  
|Prepaid expenses                                                 |               |                  
|Restricted cash                                                  |               |                  
|Deferred income taxes                                            |               |                  
|                                                                 |               |                  
|Total current assets                                             |               |                  
|                                                                 |               |                  
|Property and equipment, net                                      |               |                  
|Aircraft purchase deposits and pre-delivery progress payments    |               |                  
|Other assets, net                                                |               |                  
|                                                                 |               |                  
|Total assets                                                     |               |                  
|                                                                 |               |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY                             |               |                  
|Current liabilities:                                             |               |                  
|Accounts payable                                                 |               |                  
|Income taxes payable                                             |               |                  
|Current maturities of long-term debt                             |               |                  
|Air traffic liability                                            |               |                  
|Unearned revenue                                                 |               |                  
|Accrued liabilities                                              |               |                  
|                                                                 |               |                  
|Total current liabilities                                        |               |                  
|                                                                 |               |                  
|Long-term debt                                                   |               |                  
|Long-term debt on pre-delivery progress payments                 |               |                  
|Deferred income taxes                                            |               |                  
|Noncurrent scheduled maintenance expense                         |               |                  
|Accrued pension and other postretirement benefits                |               |                  
|Deferred frequent flyer partner revenue                          |               |                  
|Deferred revenue                                                 |               |                  
|Other noncurrent liabilities                                     |               |                  
|                                                                 |               |                  
|Total liabilities                                                |               |                  
|                                                                 |               |                  
|Shareholders' equity:                                            |               |                  
|Preferred stock, without par value; 5,000,000 shares authorized, |               |                  
|no shares issued and outstanding                                 |               |                  
|Common stock, $.01 par value; 50,000,000 shares authorized,      |               |                  
|18,129,011 and 18,108,959 shares issued at June 30, 2004         |               |                  
|and December 31, 2003, respectively                              |               |                  
|Additional paid-in capital                                       |               |                  
|Treasury stock, at cost                                          |               |                  
|Retained earnings                                                |               |                  
|Cumulative other comprehensive loss                              |               |                  
|                                                                 |               |                  
|Total shareholders' equity                                       |               |                  
|                                                                 |               |                  
|Total liabilities and shareholders' equity                       |               |                  
|                                                                 |               |                  

See notes to unaudited
condensed consolidated financial statements.

3

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# MIDWEST AIR GROUP,
INC.                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     (Dollars in
thousands)          (Unaudited)

|                                                              | Six Months Ended
June 30,
|------------------------------------------------------------- | -------------------------
|
|Operating activities:                                         |                          
|Net loss                                                      |                          
|Items not involving the use of cash:                          |                          
|Depreciation and amortization                                 |                          
|Deferred income taxes                                         |                          
|Other, net                                                    |                          
|Changes in operating assets and liabilities:                  |                          
|Accounts receivable                                           |                          
|Inventories                                                   |                          
|Prepaid expenses                                              |                          
|Restricted cash                                               |                          
|Other assets                                                  |                          
|Accounts payable                                              |                          
|Deferred frequent flyer partner revenue                       |                          
|Accrued liabilities                                           |                          
|Unearned revenue                                              |                          
|Accrued pension                                               |                          
|Air traffic liability                                         |                          
|Other non-current liabilities                                 |                          
|                                                              |                          
|Net cash provided by operating activities                     |                          
|                                                              |                          
|Investing activities:                                         |                          
|Capital expenditures                                          |                          
|Aircraft purchase deposits and pre-delivery progress payments |                          
|Aircraft purchase deposits returned                           |                          
|Proceeds from sale of property and equipment                  |                          
|Other, net                                                    |                          
|                                                              |                          
|Net cash provided by (used in) investing activities           |                          
|                                                              |                          
|Financing activities:                                         |                          
|Funding of pre-delivery progress payments                     |                          
|Return of pre-delivery progress payments                      |                          
|Payment on note payable                                       |                          
|Other, net                                                    |                          
|                                                              |                          
|Net cash used in financing activities                         |                          
|                                                              |                          
|Net increase (decrease) in cash and cash equivalents          |                          
|Cash and cash equivalents, beginning of period                |                          
|                                                              |                          
|Cash and cash equivalents, end of period                      |                          
|                                                              |                          
|Supplemental non-cash activities:                             |                          
|Non-cash incentives                                           |                          
|Supplemental cash flow information:                           |                          
|Cash paid (received) for:                                     |                          
|Income taxes                                                  |                          
|Interest                                                      |                          
|                                                              |                          

See notes to unaudited
condensed consolidated financial statements.

4

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# Midwest Air Group,
Inc. Notes to Unaudited Condensed Consolidated Financial Statements

|1. | Business
and Basis of Presentation
|-- | ----------------------------------

| | The
accompanying unaudited condensed consolidated financial statements for the three- and
six-month periods ended June 30, 2004 and 2003 and as of June 30, 2004 reflect all
adjustments (consisting only of normal recurring adjustments, except as noted herein)
that are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The unaudited condensed
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for
interim financial information, in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X, and do not include all of the information and notes
required for complete, audited financial statements. The unaudited condensed consolidated
financial statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, together with Managements Discussion and Analysis of
Financial Condition and Results of Operations, contained in Midwest Air Group, Inc.s
(the Company) Annual Reporton Form 10-Kfor the year ended
December 31, 2003. The results of operations for the three- and six-month periods ended
June 30, 2004 are not necessarily indicative of the results for the entire fiscal year
ending December 31, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is party to litigation incidental to its business. Management believes that no
existing litigation is likely to have a materially adverse effect on the Companys
consolidated financial position or results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Segment
Reporting
|-- | -----------------

| | Midwest
Airlines, Inc. (Midwest Airlines) and Skyway Airlines, Inc. (Skyway),
doing business as Midwest Connect, constitute the reportable segments of the Company. The
Companys reportable segments are strategic units that are managed independently
because they provide different services with different cost structures. Additional detail
on segment reporting is included in the CompanysAnnual Report on Form10-K for
the year ended December 31, 2003. Financial information for the three- and six-month
periods ended June 30, 2004 and 2003, for the two segments, Midwest Airlines and Skyway,
follows (in thousands).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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|Three Months Ended June 30, 2004                  
|--------------------------------------------------
|
|Operating revenues                                
|(Loss) income before income tax provision         
|Income tax provision                              
|Net (loss) income                                 
|
|
|Operating revenues                                
|Income (loss) before income tax provision (credit)
|Income tax provision (credit)                     
|Net income (loss)                                 
|
|
|Operating revenues                                
|Loss before income tax credit                     
|Income tax credit                                 
|Net loss                                          
|
|
|Operating revenues                                
|Loss before income tax credit                     
|Income tax credit                                 
|Net loss                                          

6

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|3. | Asset
Dispositions
|-- | ------------------

| | Year-to-date
2004 results include $1.2 million (pre-tax) in lease expense on three leased DC-9
aircraft and two leased Beech 1900D aircraft removed from service during this period.
During the first six-months of 2003, five DC-9 aircraft were disposed of for a total of
$4.6 million (pre-tax) in disposition costs reflected in lease costs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | New
Accounting Pronouncements
|-- | -----------------------------

| | On
December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of
2003 (the Act) was signed into law. The Act introduced a prescription drug
benefit program under Medicare (Medicare Part D) as well as a federal subsidy to sponsors
of retiree health care benefit plans that provide a benefit that is at least actuarial
equivalent to Medicare Part D. Certain accounting issues raised by the Act, such as how
to account for the federal subsidy, are not explicitly addressed by FASB Statement No.
106, EmployersAccounting for Postretirement Benefits Other Than Pensions. The
FASB issued FASB Staff Position (FSP) FAS No. 106-2, Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (FSP No. 106-2), which requires disclosing
the effects of the Act as well as allowing sponsors to defer recognition of the effects
of the Act until the first interim or annual period beginning after June 15, 2004. The
Company is currently evaluating the impact of FSP No. 106-2 as it relates to the
accumulated postretirement benefit obligation ("APBO") and net periodic postretirement
benefit costs and has elected to defer recognition of the effects of the Act.
Accordingly, any measures of the APBO and net periodic postretirement benefit costs in
the financial statements or the accompanying footnotes do not reflect the effects of the
Act.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Non-Cash
Incentives
|-- | -------------------

| | Midwest
Airlines has received credit memos from certain suppliers associated with the delivery of
each Boeing 717 aircraft to be used for the acquisition of aircraft spare parts and
maintenance tooling, employee training, flight simulator rental, aircraft lease payments
and engine maintenance agreements. As of June 30, 2004, the amount of unused credit memos
totaled $4.7 million and is recorded as other assets in the unaudited condensed
consolidated balance sheets. Midwest Airlines will receive additional credit memos on the
delivery of each subsequent Boeing 717 aircraft, and will continue to use the credits as
needed to pay for applicable services. The benefit of these credit memos is being
recognized over the term of the related leases.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | ShareholdersEquity
|-- | -------------------

| | At
June 30, 2004, the Company had two stock-based employee compensation plans and one stock
plan for outside directors, which are described more fully in Note 7 of the Notes to the
Consolidated Financial Statements of the Companys Annual Report on Form 10-K for
the year ended December 31, 2003. The Company has adopted the disclosure requirements of
SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123)
as amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure. The Company has elected to continue to follow the provisions of
Accounting Principles Board No. 25, Accounting for Stock Issued to Employeesand
its related interpretations. Accordingly, no compensation cost has been reflected for the
1995 Stock Option Plan in the unaudited condensed consolidated financial statements in
this filing. Compensation expense was recognized for the difference between the fair
value and exercise price as of the grant date for options issued under the 2003
All-Employee Stock Option Plan.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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| | Had
compensation costs for the Companys stock option plans been determined based on
their fair value at the grant dates for awards under those plans consistent with the
method of SFAS 123, the Companys net (loss) income and net (loss) income per share
for the three- and six-month periods ended June 30, 2004 and 2003 would have been reduced
or increased, as the case may be, to the pro forma amounts indicated below (in thousands,
except per share amounts):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                | Three Months Ended
June 30, | Six Months Ended
June 30,
|----------------------------------------------- | --------------------------- | -------------------------
|
|Net (loss) income:                              |                             |                          
|As reported                                     |                             |                          
|Add:  Total stock-based employee compensation   |                             |                          
|expense recognized, net of related tax effect   |                             |                          
|Deduct: Total stock-based employee compensation |                             |                          
|expense determined under fair value based       |                             |                          
|methods, net of related tax effect              |                             |                          
|                                                |                             |                          
|Pro forma                                       |                             |                          
|                                                |                             |                          
|Net (loss) income per share - basic:            |                             |                          
|As reported                                     |                             |                          
|Pro forma                                       |                             |                          
|Net (loss) income per share - diluted:          |                             |                          
|As reported                                     |                             |                          
|Pro forma                                       |                             |                          

| | The
following table is a reconciliation of the weighted average shares outstanding for the
three- and six-month periods ended June 30, 2004 and 2003 (in thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | Three Months Ended
June 30, | Six Months Ended
June 30,
|------------------------------------ | --------------------------- | -------------------------
|
|Weighted average shares outstanding  |                             |                          
|Effect of dilutive securities:       |                             |                          
|Stock options (1) (2)                |                             |                          
|Warrants (3)                         |                             |                          
|Convertible Debt (3)                 |                             |                          
|Shares issuable under the 1995 Stock |                             |                          
|Plan for Outside Directors (4)       |                             |                          
|                                     |                             |                          
|Weighted average shares outstanding  |                             |                          
|assuming dilution                    |                             |                          

| | (1) | Stock
options outstanding under the 1995 Stock Option Plan of 44 were excluded           from
the calculation for the three months ended June 30, 2004, as their effect           was
anti-dilutive. Stock options outstanding under the 1995 Stock Option Plan of           41
and 0 were excluded from the calculations for the six months ended June 30,
          2004 and 2003, respectively, as their effect was anti-dilutive.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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| | (2) | Stock
options outstanding under the 2003 All-Employee Stock Option Plan of 190           were
excluded from the calculation for the three- and six-months ended June 30,
          2004, as their effect was anti-dilutive.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Warrants
and/or convertible senior secured notes issued by the Company were           excluded
from the June 30, 2004 calculation due to their effect being           anti-dilutive.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Shares
issuable under the 1995 Stock Plan for Outside Directors of 36 were           excluded
from the calculation for the three months ended June 30, 2004, as their           effect
was anti-dilutive. Shares issuable under the 1995 Stock Plan for Outside
          Directors of 36 and 20 were excluded from the calculations for the six months
          ended June 30, 2004 and 2003, respectively, as their effect was anti-dilutive.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In connection with the final
restructuring agreements with the aircraft lessors and lenders in August 2003, the Company
issued warrants to certain lessors and lenders that currently give the holders the right
to purchase in the aggregate 1,571,467 shares of the Companys common stock at an
exercise price per share of $4.72, which amounts are subject to adjustment pursuant to
certain anti-dilution provisions. The warrants expire in August 2013. None of the warrants
had been exercised as of June 30, 2004. The Company also sold convertible senior secured
notes to certain qualified institutional investors and accredited investors in late 2003
to raise proceeds during the restructuring process. The convertible senior secured notes
are generally convertible at any time at the option of the note holders into shares of
common stock of the Company at an initial conversion price of $5.00 per share, which is
subject to adjustment pursuant to certain anti-dilution provisions. None of the notes had
been converted as of June 30, 2004.

|7. | Income
Taxes
|-- | ------------

Due to accumulated losses and the
inability to offset net operating losses against deferred tax liabilities, the Company
will no longer record income tax benefit on losses effective with the second quarter 2004.
The effective tax rate decreased to 0.2% and 27.6% for the three- and six-month period
ended June 30, 2004.

|8. | Comprehensive
(Loss) Income
|-- | ---------------------------

The Company includes changes in the
fair value of certain derivative financial instruments that qualify for hedge accounting
and changes in minimum pension liabilities in comprehensive (loss) income. Comprehensive
(loss) income was ($3.5) million and ($10.3) million for the three- and six-month periods
ended June 30, 2004, and $3.6 million and ($8.6) million for the three- and six-month
periods ended June 30, 2003, respectively. The difference between the net (loss) income
and comprehensive (loss) income for the three- and six-month periods ended June 30, 2004
and 2003 is due to the required accounting for the Companys changes in minimum
pension liabilities and derivative financial instruments, respectively.

|9. | Financing
Agreements
|-- | --------------------

The Company has agreements with
organizations that process credit card transactions arising from purchases of air travel
tickets by customers of the Company. The Company has one such agreement with an
organization that processes MasterCard/Visa transactions. The agreement with this credit
card processor was amended in January 2002 to allow the credit card processor to create
and maintain a reserve account that is funded by retaining cash that it otherwise would
deliver to the Company (i.e., restricted cash). At June 30, 2004, the
restricted cash balance was $24.2 million. In the first quarter of 2004, the Company and
the credit card processor agreed to an extension of the agreement until March 31, 2005.
This extension included a provision to lower the cash holdback amount from 100% to 80% of
advance sales provided certain financial covenants are met. The Company achieved the
monthly covenants in April, May and June 2004. However, the Company did not achieve the
quarterly covenant for the three-month period ended June 30, 2004. The Company and credit
card processor are currently in discussions to determine what, if any, adjustments will be
made to the holdback amount as the credit card processor has the right to request a 100%
holdback. The Company also has agreements with American Express, Diners Club and Discover.
As of June 30, 2004, only American Express had retained cash related to credit card
processing totaling $1.0 million. If current industry conditions persist, other credit
card processors may require holdbacks as well. The aggregate amount of the risk exposure
of all processors (less amounts currently under holdback) as of July 31, 2004 was
approximately $5.8 million.

9

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|10. | Retirement
and Benefit Plans
|--- | ----------------------------

The net periodic benefit cost of
benefit pension plans for the three- and six-month periods ending June 30, 2004 and 2003,
respectively, includes the following (in thousands):

|                                | Pension Benefits | Other Benefits
|------------------------------- | ---------------- | --------------
|
|2003                            | 2003             | 2003          
|Components of Net Periodic      |                  |               
|Benefit Cost                    |                  |               
|Service cost                    |                  |               
|Interest cost                   |                  |               
|Expected return on assets       |                  |               
|Amortization of:                |                  |               
|Prior service cost (credit)     |                  |               
|Actuarial loss                  |                  |               
|                                |                  |               
|Total net periodic benefit cost |                  |               

The Company disclosed in its
financial statements for the year ended December 31, 2003, that it expected to contribute
approximately $1.6 million to its qualified pension plan in 2004. As of June 30, 2004,
$0.3 million of contributions have been made. On April 10, 2004, the President signed into
law the Pension Funding Equity Act of 2004 (the Pension Act). The Pension Act
provides temporary pension funding relief for U.S. companies by replacing the interest
rate on the discontinued 30-year Treasury bond with a rate based on a composite of
long-term corporate bonds for years 2004 and 2005, which lowers required pension funding
obligations during these two years. As a result of the Pension Act, the current year
qualified plan funding requirements of the Company have been reduced, and the Company
expects to make one additional contribution of approximately $0.1 million to the qualified
pension plan for the remainder of the year.

10

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# Item 2.
Managements Discussion and Analysis of Results of Operations and Financial Condition

# Results of Operations

# Overview

|Three Months Ended
June 30, | Six Months Ended
June 30,
|--------------------------- | -------------------------
|2003                        | Net Change               
|Total Operating Revenue     |                          
|Total Operating Expenses    |                          
|Operating Loss              |                          
|Net (Loss) Income           |                          

Results to date for 2004 include $1.2
million (pre-tax) in lease expense on three leased DC-9 aircraft and two leased Beech
1900D aircraft removed from service during 2004. The results for the first six months of
2003 included $11.4 million (pre-tax) in other income for payment received from the April
2003 Emergency Wartime Supplemental Appropriations Act for reimbursement of security costs
and $4.6 million in lease expense associated with the disposition of five DC-9 aircraft.

In the second quarter 2004 compared
to the second quarter 2003, revenue increased 10.0%, unit costs declined significantly in
most cost categories and both Midwest Connect and Saver Service positively impacted
results; however, higher than expected fuel prices and a continuing overall poor revenue
yield environment, primarily caused by increased competition, prevented the Company from
returning to profitability.

Saver Service, which was initiated in
August 2003, has enabled Midwest Airlines to carry a significantly increased number of
passengers to leisure-oriented destinations. Saver Service represented 44% of the total
scheduled service capacity of Midwest Airlines during the second quarter of 2004 and had a
significant impact on both unit revenues and unit costs. As anticipated, unit revenues
declined as Saver Service was offered at lower fares to stimulate travel. The result was
higher flight load factors and lower revenue yields in these markets in the second quarter
2004 compared to second quarter 2003, but more revenue per flight segment than if these
routes would have been operated with Signature Service. Saver Service has a positive
impact on unit costs, since Saver Service added about 25% more seats on each corresponding
flight segment. In total, Saver Service continued to meet the Companys expectations
in revenue generation, cost reduction and customer satisfaction during the second quarter.

Midwest Connect financial results
improved measurably in the second quarter 2004 compared to second quarter 2003. In late
2003, schedule changes were implemented to shorten the flight lengths of the 328JET
aircraft and focus its operations in higher revenue yield markets and markets that feed
traffic to/from Milwaukee. In the second quarter of 2004, revenue per seat mile increased
24.1%  the combination of a 3.4 percentage point increase in load factor and a 16.6%
increase in revenue yield. Also, the number of connecting passengers to Midwest Airlines
increased more than 50%. Primarily due to the shorter flight lengths, cost per available
seat mile at Midwest Connect increased 15.8%.

11

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Company unit costs were also
favorably impacted by the cost restructuring completed in 2003 and the transition to new
Boeing 717 aircraft. The restructuring plan resulted in unit cost reductions in most
categories, with the major impact on the labor, commissions and aircraft rental line
items. The Company completed its transition from DC-9 aircraft to Boeing 717 aircraft
during the second of quarter 2004, 14 months after the transition was initiated. The
impact of this fleet replacement on unit costs most affected the fuel, maintenance
materials and aircraft rentals line items.

Fuel prices were substantially higher
than anticipated during the second quarter, with gradual price increases occurring
throughout the quarter and continuing into the third quarter. The average fuel prices in
the first and second quarters of 2004 have been the highest in the Companys history.
Fuel consumption totaled approximately 40.7 million gallons year-to-date, a reduction from
the 41.7 million gallons used during the first six months of 2003, primarily due to using
more fuel-efficient Boeing 717 aircraft. Each penny change in fuel price currently results
in a change to quarterly operating results of approximately $200,000.

The Company continues to adjust to
changes in competition and industry pricing initiatives, particularly in the Milwaukee
market. In the third quarter of 2004, Northwest Airlines increased service in several
Milwaukee markets, but at the same time transitioned from large jet aircraft to regional
jets on several business routes. AirTran Airways and US Airways have discontinued service
in several Milwaukee markets. The Company has also experienced multiple low-fare pricing
initiatives from other airlines attempting to gain market share or stimulate traffic.
However, the Companys share of passenger enplanements in Milwaukee during the second
quarter of 2004 increased 3.7 percentage points, to 39.5%. The Company intends to
vigorously compete in the changing environment by offering what we believe are superior airline services at
competitive fares.

During the second quarter of 2004,
the Company placed into service one Boeing 717 aircraft, replacing its last DC-9 aircraft.
In addition, two Beech 1900D aircraft were removed from service and the associated leases
terminated. The Company plans to place one additional Boeing 717 aircraft into service in
each of the third and fourth quarters of this year.

The Companys unrestricted cash
position improved slightly during the second quarter of 2004, increasing $1.9 million to
$103.2 million.

Subsequent sections contain a more
detailed discussion of revenue and cost comparisons for the second quarter.

12

---

Operating Statistics The following
table provides selected operating statistics for Midwest Airlines and Midwest Connect.

|                                                | Three Months Ended
June 30, | Six Months Ended
June 30,
|----------------------------------------------- | --------------------------- | -------------------------
|2004                                            | 2003                        | 2004                     
|Midwest Airlines Operations                     |                             |                          
|Origin & Destination Passengers                 |                             |                          
|Revenue Passenger Miles (000s)                  |                             |                          
|Scheduled Service Available Seat Miles (000s)   |                             |                          
|Total Available Seat Miles (000s)               |                             |                          
|Load Factor (%)                                 |                             |                          
|Revenue Yield                                   |                             |                          
|Revenue per Scheduled Service ASM (1)           |                             |                          
|Total Cost per Total ASM                        |                             |                          
|Average Passenger Trip Length (miles)           |                             |                          
|Number of Flights                               |                             |                          
|Into-plane Fuel Cost per Gallon                 |                             |                          
|Full-time Equivalent Employees at End of Period |                             |                          
|Aircraft in Service at End of Period            |                             |                          
|Midwest Connect Operations                      |                             |                          
|Origin & Destination Passengers                 |                             |                          
|Revenue Passenger Miles (000s)                  |                             |                          
|Scheduled Service Available Seat Miles (000s)   |                             |                          
|Total Available Seat Miles (000s)               |                             |                          
|Load Factor (%)                                 |                             |                          
|Revenue Yield                                   |                             |                          
|Revenue per Scheduled Service ASM (1)           |                             |                          
|Total Cost per Total ASM                        |                             |                          
|Average Passenger Trip Length (miles)           |                             |                          
|Number of Flights                               |                             |                          
|Into-plane Fuel Cost per Gallon                 |                             |                          
|Full-time Equivalent Employees at End of Period |                             |                          
|Aircraft in Service at End of Period            |                             |                          

(1) Passenger, cargo and other
transport-related revenue divided by scheduled service ASMs.

Note:  All statistics exclude
charter operations except the following: total available seat miles ("ASMs"), cost per
total ASM, into-plane fuel cost, number of employees and aircraft in service. Aircraft
aquired but not yet placed into service are excluded from the aircraft in service
statistics. Numbers in this table may not be recalculated due to rounding.

13

---

The following table provides
operating revenues and expenses for the Company expressed as cents per total ASM,
including charter operations, and as a percentage of total revenues:

|                                       | Three Months Ended June 30, | Six Months Ended June 30,
|-------------------------------------- | --------------------------- | -------------------------
|
|
|Operating Revenues:                    |                             |                          
|Passenger service                      |                             |                          
|Cargo                                  |                             |                          
|Other                                  |                             |                          
|                                       |                             |                          
|Total Operating Revenues               |                             |                          
|                                       |                             |                          
|Operating Expenses:                    |                             |                          
|Salaries, wages and benefits           |                             |                          
|Aircraft fuel and oil                  |                             |                          
|Commissions                            |                             |                          
|Dining services                        |                             |                          
|Station rental, landing, other fees    |                             |                          
|Aircraft maint., materials and repairs |                             |                          
|Depreciation and amortization          |                             |                          
|Aircraft rentals                       |                             |                          
|Other                                  |                             |                          
|                                       |                             |                          
|Total Operating Expenses               |                             |                          
|                                       |                             |                          
|Total ASMs (000s)                      |                             |                          

Note:  Numbers, percents
and totals in this table may not be recalculated due to rounding.

14

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# Three Months Ended
June 30, 2004  Compared With Three Months Ended June 30, 2003

Operating Revenues Company operating
revenues totaled $106.9 million in second quarter 2004, a $10.0 million, or 10.3%,
increase from second quarter 2003. Passenger revenues accounted for 86.4% of total
revenues and increased $9.2 million, or 11.0%, from second quarter 2003 to $92.3 million.
The increase is attributable to a 25.5% increase in passenger volume, as measured by
scheduled service revenue passenger miles, partially caused by a 1.5 percentage point
increase in load factor. The increase was partially offset by an 11.5% decrease in
passenger yield. The decrease in revenue yield was due primarily to reduced business
fares, heavy industrywide fare discounting implemented to stimulate travel demand,
increased competition in many markets including Midwest Airlines main base of
operations in Milwaukee, and the introduction of Saver Service in August of 2003  which
resulted in more passengers at lower yields.

Midwest Airlines passenger revenue
increased $7.9 million, or 12.1%, from 2003 to $73.1 million. This increase was primarily
the result of a 29.5% increase in passenger volume due to Saver Service, as measured by
scheduled service revenue passenger miles. The increase in traffic was partially offset by
a decrease in revenue yield of 13.4% due to the factors described above. Total capacity,
as measured by scheduled service ASMs, increased 27.9%, with 11.5% due to the conversion
of routes to Saver Service and 16.4% due to schedule additions and modifications.

Midwest Connect passenger revenue
increased $1.3 million, or 7.2%, from second quarter 2003 to $19.2 million. This increase
was primarily the result of a 16.6% increase in revenue yield, caused mostly by schedule
changes that resulted in a transition to shorter flights with higher yields. The yield
increase was partially offset by an 8.1% decline in passenger volume, as measured by
scheduled service revenue passenger miles, which was caused primarily by a 13.5% reduction
in capacity. More passengers were carried for shorter distances in second quarter 2004
compared with second quarter 2003 as the average passenger trip decreased 19.5% to 300
miles.

Revenue from cargo and other services
increased $0.8 million in second quarter 2004. Revenue from charter sales increased $0.3
million in second quarter 2004 due to the Companys agreement with The Mark Travel
Corporation. Service fee revenue also increased $0.3 million due to an increased volume of
ticket changes and associated administrative fees.

Operating Expenses Second quarter
2004 operating expenses increased $7.3 million, or 7.2%, from second quarter 2003. The
majority of the increase is due to total aircraft fuel and oil expense increasing $6.3
million, or 34.4%, to $24.5 million for the second quarter of 2004. Total operating costs
per total ASM (unit costs) at Midwest Airlines decreased 15.8% to $0.10 in second quarter
2004; Midwest Connects cost per total ASM increased 15.8% to $0.22.

Salaries, wages and benefits
increased $0.3 million to $35.1 million in second quarter of 2004. This was primarily due
to a decrease in the labor rates and fringe benefits ($0.2 million) and an increase in
head count ($0.4 million), primarily at Midwest Connect.

15

---

Aircraft fuel and oil and associated
taxes increased $6.3 million, or 34.4%, to $24.5 million in second quarter 2004.
Into-plane fuel prices increased 32.2% in second quarter 2004, averaging $1.24 per gallon
versus $0.94 per gallon in second quarter 2003, and resulted in a $5.9 million (pre-tax)
unfavorable price impact (calculated by applying 2003 prices to actual gallons consumed in
2004 and comparing the result to actual 2004 expense). Fuel consumption increases resulted
in a $0.3 million (pre-tax) unfavorable impact in the quarter (calculated by applying 2003
prices to the actual change in gallons consumed in 2004 relative to 2003), primarily as a
result of an increase in the number of flights. In second quarter 2004, consumption of
fuel per available seat mile declined 17.8% compared with second quarter 2003.

Dining services costs increased $0.4
million, or 27.3%, from second quarter 2003 to $1.8 million. Total dining services costs
per Midwest Airlines passenger increased from $2.96 in second quarter 2003 to $3.08 for
second quarter 2004  the result of pricing changes.

Station rental, landing and other
fees increased $1.2 million, or 14.5%, from second quarter 2003 to $9.6 million. The
increase is due primarily to increased costs in ground handling ($0.3 million), landing
fees ($0.4 million), and facility and gateway rent ($0.6 million). On a cost per total ASM
basis, these costs decreased 7.4%.

Aircraft maintenance material costs
increased $2.8 million, or 38.4%, from second quarter 2003 to $10.1 million. The DC-9
aircraft retirements in 2003 had a positive accounting impact on engine overhaul costs in
2003 so that by comparison to 2004, engine overhaul costs are $2.6 million higher or $4.5
million in 2004.  On a cost per total ASM basis, these costs increased 11.9%.

Depreciation and amortization
decreased $1.1 million, or 20.8%, from second quarter 2003 to $4.3 million, due primarily
to the retirement of the DC-9 fleet and associated capitalized parts. On a cost per total
ASM basis, these costs decreased 35.9%.

Aircraft rental costs decreased $2.9
million, or 23.3%, from second quarter 2003 to $9.4 million. The decrease was due
primarily to the disposal of five DC-9 aircraft in 2003 for $4.6 million (pre-tax) in
aircraft disposition costs that appeared in aircraft rental costs, as well as lower lease
rates on remaining aircraft in the Company fleet as a result of the restructuring. This
was partially offset by increased lease costs associated with the Boeing 717 aircraft that
entered service following the second quarter of 2003. On a cost per total ASM basis, these
costs decreased 38.0%.

Other operating expenses increased
$0.5 million, or 4.2%, from second quarter 2003 to $12.2 million. Cost increases were
primarily due to frequent flyer-related costs ($0.7 million), early retirement of an
engine ($0.5 million) and facilities rent ($0.4 million) due to the sale/leaseback of the
Companys headquarters facility in November 2003. These were partially offset by
reductions in legal services ($0.6 million) and property taxes ($0.6 million). On a cost
per total ASM basis, other operating expenses decreased 15.7%.

16

---

Other Income (Expense) Other income
(expense) decreased $11.7 million from second quarter 2003 to ($0.6) million. Included in
second quarter 2003 other income was an $11.4 million (pre-tax) payment received from the
April 2003 Emergency Wartime Supplemental Appropriations Act for reimbursement of
security costs.

Provision for Income TaxesIncome
tax provision for second quarter 2004 was less than $0.1 compared to $1.9 million 2003.
The effective tax rates for the second quarters of 2004 and 2003 were 0.2% and 35.0%,
respectively. Due to accumulated losses and the inability to offset net operating losses
against deferred tax liabilities, the Company will no longer record income tax benefits
on losses effective with the second quarter 2004.

Net (Loss) Income Net loss for
second quarter 2004 was ($3.5) million, a decrease of $7.1 million from second quarter
2003 net income of $3.6 million. The net loss margin decreased to (3.2)% in the second
quarter 2004 from 3.7% in the second quarter 2003.

# Six Months Ended June
30, 2004  Compared With Six Months Ended June 30, 2003

Operating Revenues Company operating
revenues totaled $208.2 million for the six months ended June 30, 2004, a $17.2 million,
or 9.0%, increase from the first six months of 2003. Passenger revenues accounted for
84.7% of total revenues and increased $13.2 million, or 8.1%, from 2003 to $176.2
million. The increase was attributable to a 23.5% increase in passenger volume, as
measured by revenue passenger miles, and partially offset by a 12.5% decrease in yield.
Load factor increased from 62.2% in 2003 to 64.6% in 2004.

Midwest Airlines passenger revenue
increased $11.1 million, or 8.6%, from 2003 to $140.9 million in 2004. This increase was
primarily the result of a 27.0% increase in passenger volume, as measured by revenue
passenger miles, and partially offset by a 14.6% decrease in revenue yield. Total Midwest
Airlines capacity, as measured by scheduled service ASMs, increased 23.5% due to the
introduction of Saver Service and new Signature Service routes. Load factor increased from
63.9% in 2003 to 65.7% in 2004.

Midwest Connect passenger revenue
increased by $2.1 million, or 6.2%, from 2003 to $35.3 million in 2004. A 15.8% increase
in revenue yield was caused by schedule changes that resulted in a transition to shorter
flights with higher yields and increased pricing in certain markets. The yield increase
was partially offset by an 8.3% decrease in passenger volume, which was caused by a 14.4%
reduction in capacity. More passengers were carried for shorter distances in 2004 compared
with 2003 as the average passenger trip decreased 19.2% to 290 miles.

17

---

The Companys revenue from cargo
and other services increased $4.1 million, or 14.6%, from 2003 to $32.0 million in 2004.
Midwest Airlines benefited from increased revenue from charter sales as more aircraft time
was available for charter service, and the Company had exclusive charter rights for eight
professional sports teams during 2004 compared with seven in 2003. The increased charter
revenue was partially offset by a $0.2 million decrease in cargo revenue.

Operating Expenses Company operating
expenses increased $6.9 million, or 3.2%, from 2003 to $221.3 million in 2004. The
increase was due to higher fuel costs ($6.1 million); aircraft maintenance, material, and
repairs ($3.5 million); and frequent flyer costs ($1.1 million). The increase was
partially offset by a reduction in salaries, wages and benefits ($3.6 million) and
depreciation and amortization expense ($2.0 million). The Companys cost per total
ASM decreased 14.9%.

Salaries, wages and benefits
decreased $3.6 million, or 4.9%, from 2003 to $70.1 million in 2004. The labor decrease
was primarily due to an average lower headcount during the six months ended June 30, 2004
($3.7 million) as well as lower labor rates ($1.2 million), partially offset by increased
costs for fringe benefits ($0.6 million). On a cost per total ASM basis, labor costs
decreased from 4.4¢ in 2003 to 3.4¢ in 2004.

Aircraft fuel and oil and associated
taxes increased $6.1 million, or 14.2%, from 2003 to $49.1 million in 2004. Into-plane
fuel prices increased 17.0% in 2004, averaging $1.21 per gallon in 2004 versus $1.03 per
gallon in 2003, resulting in a $7.2 million unfavorable (pre-tax) price impact (calculated
by applying 2003 prices to actual gallons consumed in 2004 and comparing the result to
actual 2004 expense). Fuel consumption decreases resulted in a $1.0 million (pre-tax)
favorable impact in the quarter (calculated by applying 2003 prices to the actual
reduction in gallons consumed in 2004 relative to 2003), primarily as a result of more
fuel-efficient Boeing 717 aircraft replacing older DC-9 aircraft. During 2004, consumption
of fuel per available seat mile declined 19.5% compared with 2003.

Travel agent and credit card
commissions decreased $1.1 million, or 17.5%, from 2003 to $5.1 million. On a cost per
total ASM basis, commissions decreased 32.0% from 2003. The decrease was primarily due to
the elimination of standard travel agency commissions as of March 2003. Commissions, as a
percentage of passenger revenue, decreased from 3.8% in 2003 to 2.9% in 2004.

Dining service costs decreased $0.9
million, or 19.2%, from 2003 to $3.8 million in 2004. The decrease was due to the
elimination of complimentary onboard meal service in March 2003. Total dining service
costs per Midwest Airlines passenger decreased 33.2%, from $4.85 in 2003 to $3.24 in 2004.

Station rental, landing and other
fees increased $1.0 million, or 5.3%, from 2003 to $20.6 million in 2004. The increase is
due primarily to higher costs for ground handling ($0.5 million), landing fees ($0.3
million), and facility and gateway rent ($0.7 million). This was partially offset by a
$0.3 million decrease in deicing and glycol. On a cost per total ASM basis, these costs
decreased 13.1%.

18

---

Maintenance costs increased $3.5
million, or 23.0%, from 2003 to $18.7 million. The DC-9 aircraft retirements in 2003 had a
positive accounting impact on engine overhaul costs in 2003 so that by comparison to
2004, engine overhaul costs are higher in 2004. On a cost per total ASM basis, this
category increased 1.5%.

Depreciation and amortization
decreased $2.0 million, or 18.2%, from 2003 to $8.9 million in 2004. Depreciation was
lower as the DC-9 fleet was essentially replaced quarter over quarter with leased Boeing
717s. On a cost per total ASM basis, these costs decreased 32.5%.

Other operating expenses increased
$3.2 million, or 14.4%, from 2003 to $25.7 million in 2004. The increase was primarily due
to cost increases in frequent flyer-related expenses ($1.1 million), facilities rental
($0.9 million), charter service costs ($0.7 million), advertising ($0.7 million), and
flight standards/training expenses ($0.6 million). These increases were partially offset
by a decrease of $0.6 million in legal services costs due to the Companys 2003
restructuring efforts. On a cost per total ASM basis, these costs decreased 5.6%.

Other Income (Expense) Other income
(expense) decreased $12.1 million from 2003 to ($1.2) million in 2004. Included in second
quarter 2003 other income was an $11.4 million (pre-tax) payment received from the April
2003 Emergency Wartime Supplemental Appropriations Act for reimbursement of security
costs.

Credit for Income Taxes Income tax
credit for the first six months of 2004 was ($3.9) million, a decrease of $0.5 million
from the 2003 credit of ($4.4) million. The effective tax rate for the first six months
of 2004 and 2003 was 27.6% and 35.0%, respectively. Due to accumulated losses and the
inability to offset net operating losses against deferred tax liabilities, the Company
will no longer record income tax benefits on losses effective with the second quarter
2004.

Net Loss  Net loss for the first six
months of 2004 was ($10.3) million, which reflects an increase of $2.1 million from the
2003 net loss of ($8.2) million. The net loss margin increased to (5.0)% in 2004 from
(4.3)% in 2003.

19

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# Liquidity and Capital
Resources

The Companys unrestricted cash
and cash equivalents totaled $103.2 million at June 30, 2004, compared with $88.3 million
at December 31, 2003. At June 30, 2004, the restricted cash balance was $24.2 million,
compared with $26.1 million at December 31, 2003. The change in restricted cash is
primarily attributable to a decrease in the credit card holdback amount, which is
discussed in more detail in Note 9 to the unaudited condensed consolidated financial
statements (as noted in Note 9, the Company and credit card processor are currently in
discussions to determine what, if any, adjustments will be made to the holdback amount as
the credit card processor currently has the right to request that the holdback be
increased from 80% to 100%).

The unrestricted cash balance at June
30, 2004 reflects the favorable impact of the use of credit memos received from certain
suppliers associated with the delivery of each Boeing 717 aircraft, as discussed more
fully below, and a reduction in the percent of cash held back (from 100% to 80% as
discussed in Note 9 to the condensed consolidated financial statements) by the processor
of Visa/MasterCard transactions.

As of June 30, 2004, the Company had
a working capital surplus of $54.1 million compared with a $39.3 million surplus as of
December 31, 2003. The change in working capital as of June 30, 2004 is primarily related
to the increase in unrestricted cash discussed above.

Operating ActivitiesNet cash
provided by operations for the six months ended June 30, 2004 totaled $11.7 million. Cash
provided by operations for the six months ended June 30, 2004 primarily reflects the
effects of the use of credit memos related to the acquisition of Boeing 717 aircraft.
Midwest Airlines has used credit memos from certain suppliers associated with the
delivery of each Boeing 717 aircraft for the acquisition of aircraft spare parts and
maintenance tooling, employee training, flight simulator rental, aircraft lease payments,
and engine maintenance agreements; therefore, the majority of these expenses for the
quarter involved no cash outlay. As of June 30, 2004, the amount of unused credit memos
totaled $4.7 million and is recorded as other assets in the unaudited condensed
consolidated balance sheet. The credits available for aircraft lease payments were used
up during the first quarter of 2004. During the second quarter of 2004 and on a
go-forward basis, the Company expects to make lease payments primarily from cash flows from
operations. Midwest Airlines will receive additional credit memos on the delivery of each
subsequent Boeing 717 aircraft, and will continue to use the credits as needed to pay for
applicable services. The benefit of these credit memos is being recognized on the income
statement over the term of the related leases. In addition to the credits, net cash
provided from operations increased due to the reduction in cash holdback on advance sales
by the Mastercard/Visa processor, resulting in reduced restricted cash.

Investing Activities Net cash
provided by investing activities for the six months ended June 30, 2004 totaled $14.4
million compared with $3.0 million provided by investing activities for the year ended
December 31, 2003. The change in net cash provided from investing activities during the
six months ended June 30, 2004 is primarily related to purchase deposits that were
returned for the four Boeing 717 deliveries in the first six months of 2004. Capital
spending totaled $3.2 million; however, credits were used for a portion of such spending,
with cash outlay of $1.6 million for the six months ended June 30, 2004. Capital
expenditures consisted primarily of costs associated with the acquisition of additional
spare parts for the Boeing 717 fleet.

20

---

Financing Activities Net cash used
in financing activities for the six months ended June 30, 2004 was $11.1 million, which
was primarily related to the return of progress payments to Kreditanstalt fur
Wiederaufbau Bank (KfW) associated with four Boeing 717 aircraft delivered to
the Company during 2004. The progress payments were originally provided to The Boeing
Company (Boeing) by KfW on behalf of Rolls-Royce Deutschland Ltd. & Co.
KG (Rolls-Royce).

In second quarter 2002, Midwest
Airlines entered into a loan agreement to fund pre-delivery progress payments to Boeing
for the Boeing 717 aircraft. Midwest Airlines also entered into a loan agreement with KfW
with the assistance of Rolls-Royce. Rolls-Royce agreed to guarantee this loan agreement on
behalf of Midwest Airlines. This agreement is discussed in more detail in Note 5 to the
Consolidated Financial Statements in the Companys Annual Report on Form 10-K
for the year ended December 31, 2003. As of June 30, 2004, the Company owed $15.3 million
under the loan agreement. The Company expects that the debt associated with this financing
transaction will continue to trend downward, as the firm aircraft delivery schedule is
more than half completed.

With the KfW loan agreement and a
commitment from Boeing Capital Corporation (BCC) to finance the Boeing 717
aircraft, the Company believes it has requisite financing for the remaining firm aircraft
deliveries under the Boeing 717 program. Although BCC is able to terminate its financing
commitment if it deems the Company has experienced a material adverse change and the
commitment is subject to other conditions, the Company does not anticipate that the
financing commitment will be terminated or that it will be unable to meet the conditions.

The Company maintains a qualified
defined benefit plan, the Pilots Supplemental Pension Plan (the Qualified
Plan), which provides supplemental retirement benefits to Midwest Airlines pilots,
and an unfunded nonqualified defined benefit plan to provide Midwest Airlines pilots with
annuity benefits for salary in excess of amounts permitted to be paid under the provisions
of the tax law to participants in the Qualified Plan. The method used to determine the
market-related value of plan assets is the prior years market-related value of
assets, adjusted by contributions, disbursements, expected return on investments and 20%
of investment gains (losses) during the five prior years. As of June 30, 2004, the
Qualified Plan assets are invested primarily in equities and fixed income instruments.
Additional discussion of Qualified Plan investment strategy is included in Note 11 to the
Consolidated Financial Statements contained in the Companys Annual Report on Form
10-Kfor the year ended December 31, 2003.

As discussed in Note 5 to the
Consolidated Financial Statements contained in the Companys Annual Report on Form
10-Kfor the year ended December 31, 2003, the Company issued promissory notes to its
lessors and lenders as part of the restructuring lease and debt agreements described in
the Recent Developments section of the Companys Annual Report on Form 10-K
for the year ended December 31, 2003. The aggregate principal amount of these notes is
$7.5 million. Principal and interest (fixed at 10%) on these moratorium notes
are payable, in arrears, in 36 monthly installments beginning with the first payment that
was made during July 2004.

21

---

As a result of the restructuring of
the lease and debt agreements, the Company has significantly lowered its obligations
compared with the obligations under the previous lease and debt agreements. Included in
the restructured agreements are clauses that would make the Companys obligations,
under certain default situations, increase to the amounts under the previous agreements.
Such defaults include the Company filing for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. The amount of such contingent obligation of the Company is approximately
$18.6 million as of June 30, 2004. This contingent obligation terminates in July 2006.

2004 and Beyond The current weak
revenue environment and volatile nature of fuel prices make it difficult to accurately
project cash flow from operations for the remainder of 2004 and beyond. Absent adverse
factors outside the control of the Company  such as terrorist attacks or fear of
terrorist attacks, further substantial deterioration in the industry revenue environment,
or significant increases in fuel prices from second quarter 2004 prices  the
Company believes current liquidity and cash flow from operations will be sufficient to
fund current operations through 2004. Key cash flow items for 2004 and beyond include:

| | The
Company anticipates capital spending to be approximately $7.0 million for 2004 and is
expected to be $8-10 million annually for the next two years, excluding aircraft
acquisitions that the Company expects it will lease. The Company expects most of the
spending to be for spare parts for the Boeing 717 program and continued maintenance
support of the Midwest Airlines and Skyway fleets. Some of the capital spending will be
completed using credit memos.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company estimates net interest expense at $2 million in 2004.
|- | -----------------------------------------------------------------

| | The
Company expects non-cash expenses arising primarily from depreciation to contribute
$15-17 million to annual cash flow in 2004.
|- | -----------------------------------------------------------------------------------------------------------------------------------

| | The
Company estimates that defined benefit pension plan contributions will amount to
approximately $0.4 million in 2004.
|- | ------------------------------------------------------------------------------------------------------------------------

| | The
Company anticipates an estimated $4.8 million income tax payment in the third quarter
2004. This payment is associated with the settlement of prior years tax issues with
the Internal Revenue Service.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Payment
of principal and interest on the lender and lessor moratorium notes began in third
quarter 2004, with the principal portion of the payment totaling approximately $1.3
million for the year. Principal due under the notes for 2005 and 2006 will total
approximately $2.5 million each year, ending with principal payments totaling $1.2
million in 2007.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has various covenants in its loan agreements as discussed in Note 5 to the
Consolidated Financial Statements contained in the Companys Annual Report on
Form 10-Kfor the year ended December 31, 2003. The Company believes all covenants
will be complied with during 2004 unless significant unforeseen events occur.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

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# Pending Developments

This Form 10-Q filing, particularly
this Pending Developments section and the Overview and 2004
and Beyond sections above, contain forward-looking statements that may state the
Companys or managements intentions, hopes, beliefs, expectations or
predictions for the future. In the following discussion and elsewhere in the report,
statements containing words such as expect, anticipate,
believe, estimate, goal, objective or
similar words are intended to identify forward-looking statements. It is important to note
that the Companys actual results could differ materially from projected results due
to the risk factors described in the Risk Factors section of Item 1 of the
Companys Annual Report on Form 10-K for the year ended December 31, 2003 and
the following:

| | the
Company's ability to generate sufficient cash flows to meet obligations on a timely basis;
|- | ----------------------------------------------------------------------------------------------

| | uncertainties
concerning ongoing financing for operations, including the ability to finance the
acquisition of new aircraft;
|- | ----------------------------------------------------------------------------------------------------------------------------

| | the
Company's ability to benefit from premium pricing;
|- | ------------------------------------------------------

| | the
Company's ability to differentiate its product from competing products;
|- | ---------------------------------------------------------------------------

| | the
ability of the Company to effectively compete;
|- | --------------------------------------------------

| | uncertainties
related to the acquisition of aircraft;
|- | -----------------------------------------------------

| | uncertainties
related to general economic factors;
|- | --------------------------------------------------

| | industry
conditions;
|- | --------------------

| | labor
relations;
|- | ----------------

| | scheduling
developments;
|- | ------------------------

| | government
regulations, including increased costs for compliance with new or enhanced government
regulations;
|- | -------------------------------------------------------------------------------------------------------------

| | increases
in insurance costs;
|- | -----------------------------

| | aircraft
maintenance and refurbishment schedules;
|- | -------------------------------------------------

| | potential
delays related to acquired aircraft;
|- | ----------------------------------------------

| | increases
in fuel costs or the failure of fuel costs to decline;
|- | ----------------------------------------------------------------

| | resolution
of matters relating to a Wisconsin ad valorem property tax exemption;
|- | --------------------------------------------------------------------------------

| | interest
rate fluctuations;
|- | ---------------------------

| | increased
costs for security-related measures;
|- | ----------------------------------------------

| | potential
 aircraft  incidents  and other events  beyond the  Company's  control,  including
 traffic  congestion  and weather      conditions; and
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | terrorist
 attacks or fear of terrorist  attacks and other world  events,  including  U.S.
 military  involvement  in overseas      operations.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

Additional information concerning
factors that could cause actual results to differ materially from those in the
forward-looking statements is contained from time to time in the Companys Securities
and Exchange Commission filings. The Company assumes no obligation, and disclaims any
obligation, to update information contained in this Quarterly Report on Form 10-Q,
including forward-looking statements, as a result of facts, events or circumstances after
the date of the report.

23

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Labor Relations  In
March and April 2004, the International Brotherhood of Teamsters filed petitions with the
National Mediation Board to represent Midwest Airlines mechanics and related
employees and Midwest Airlines stock clerks, respectively. The National Mediation
Board has notified the Company that the mechanics and related employees and the stock
clerks have voted against representation by the International Brotherhood of Teamsters.

Regional Services Alliance In
April 2004, Skyway announced it is in discussions with Delta Air Lines to operate Delta
Connections Fairchild 328JET fleet. The discussions are a step toward expansion of
Skyways business model to operate aircraft for airlines in addition to Midwest
Airlines. To date, Skyway has provided connections for Midwest Airlines while operating
as Midwest Connect, as well as providing point-to-point service in select Midwestern
markets. Discussions with Delta Air Lines have continued, but no definitive agreement has
been reached. The Company assumes no obligation, and disclaims any obligation, to update
the status of these discussions until the parties reach an agreement or terminate their
discussions.

Property Tax Exemption 
On November 7, 2003, a Dane County, Wisconsin, circuit court, in an action brought by
Northwest Airlines, Inc., declared invalid the Wisconsin statute that provides the hub
airline exemption from Wisconsin ad valorem property taxes. Savings to the Company from
the exemption have been approximately $2.0 million annually. However, the Company
estimates savings could be as high as $7.0 million annually by 2010. The Company is
working independently and with the State of Wisconsin on an appeal or other action to
reduce or eliminate the potential effect of the decision. The Company is confident that it
will prevail and believes there will be no retroactive impact of the decision. The Company
has not recorded any reserve with respect to this matter.

CRS Regulations
Pursuant to a DOT ruling in 2003, most regulations governing the computer reservation
systems (CRS) industry were lifted on January 31, 2004. Two remaining
regulations were phased out in July 2004. One prohibited CRS firms from favoring one
airlines flight listings over another, and the second restricted the CRS companies
from making an airline provide all of its fares. The Company is currently evaluating the
effect of these regulatory changes on its operations.

Litigation In December
2003, Dornier Aviation (North America) Inc. Liquidating Trust filed litigation against
Skyway, disputing the validity of $3.5 million of credit memorandums used by the Company
to purchase aircraft parts and services. The credit memorandums obtained by the Company
were associated with the acquisition of the Fairchild 328JET aircraft and through
subsequent resolution of Dorniers cancellation of the 428JET program. The Company
contends the credit memorandums were properly applied.

24

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# Item 3. Quantitative and
Qualitative Disclosures about Market Risk

There have been no material changes
in the Companys market risk since December 31, 2003.

# Item 4. Controls and
Procedures

(a)  Evaluation
of disclosure controls and procedures. In accordance with Rule           13a-15(b) of
the Securities Exchange Act of 1934 (the Exchange Act),           as of the
end of the period covered by this Quarterly Report on Form 10-Q, the           Companys
management evaluated, with the participation of the           Companys principal
executive officer and principal financial officer, the           effectiveness of the
design and operation of the Companys disclosure           controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act).           Based upon their
evaluation of these disclosure controls and procedures, the           Companys
Chairman of the Board, President and Chief Executive Officer and           the Companys
Senior Vice President and Chief Financial Officer have           concluded that the
disclosure controls and procedures were effective as of the           date of such
evaluation to ensure that material information relating to the           Company,
including its consolidated subsidiaries, was made known to them by           others
within those entities, particularly during the period in which this           Quarterly
Report on Form 10-Q was being prepared.

(b)  Changes
in internal controls. There was no change in the Companys           internal
control over financial reporting that occurred during the period           covered by
this Quarterly Report on Form 10-Q that has materially affected, or           is
reasonably likely to materially affect, the Companys internal control
          over financial reporting.

25

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# PART II  OTHER
INFORMATION

# Item 4. Submission of
Matters to a Vote of Security Holders

At the Companys Annual Meeting
of Shareholders held on April 22, 2004, the following individuals were elected to the
Board of Directors:

|                          | Authority Granted | Authority Withheld
|------------------------- | ----------------- | ------------------
|John F. Bergstrom         | 13,536,374        | 1,411,067         
|Frederick P. Stratton, Jr | 13,529,256        | 1,418,185         
|John W. Weekly            | 13,537,854        | 1,409,587         

The terms of office for the
following directors continued after the Companys Annual Meeting: Samuel K. Skinner,
 Elizabeth T. Solberg,  Richard  Sonnentag,  James G.  Grosklaus,  Timothy E. Hoeksema,
 Ulice Payne,  Jr., David H. Treitel.

26

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# Item 6. Exhibits and Reports
on Form 8-K

|(a) | Exhibits
|--- | --------

| | (31.1) | Certification
of the Chief Executive Officer Pursuant to Section 302.
| | ------ | ---------------------------------------------------------------------

| | (31.2) | Certification
of the Chief Financial Officer Pursuant to Section 302.
| | ------ | ---------------------------------------------------------------------

| | (32.1) | Written
Statement of the Chief Executive Officer and Chief Financial Officer
               Pursuant to Section 906.
| | ------ | --------------------------------------------------------------------------------------------------------------------

|(b) | Reports
on Form 8-K
|--- | -------------------

| | The
following reports on Form 8-K were filed during the quarter ended June 30, 2004:
| | ------------------------------------------------------------------------------------

|Date Filed     | Date of Report | Item                                                      
|-------------- | -------------- | ----------------------------------------------------------
|April 9, 2004  | April 6, 2004  | The Company filed a news release under Item 5 of Form 8-K 
|               |                | confirming that it is in discussions with Delta Air Lines,
|               |                | Inc. to operate the Fairchild 328JET fleet of Delta       
|               |                | Connection, Inc.                                          
|April 9, 2004  | April 8, 2004  | The Company filed a news release under Item 12 of Form 8-K
|               |                | reporting March 2004 performance data.                    
|April 21, 2004 | April 21, 2004 | The Company filed a news release under Item 12 of Form 8-K
|               |                | reporting financial results for the first quarter ended   
|               |                | March 31, 2004.                                           

27

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SIGNATURES

Pursuant to the requirements of the
Securities and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

|                      | Midwest Air Group, Inc.             
|--------------------- | ------------------------------------
|Date:  August 9, 2004 | By  /s/ Timothy E. Hoeksema         
|                      | Timothy E. Hoeksema                 
|                      | Chairman of the Board, President and
|                      | Chief Executive Officer             
|Date:  August 9, 2004 | By  /s/ Robert S. Bahlman           
|                      | Robert S. Bahlman                   
|                      | Senior Vice President and           
|                      | Chief Financial Officer             

28

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# EXHIBIT INDEX MIDWEST
AIR GROUP, INC. QUARTERLY REPORT ON FORM 10-Q

# FOR THE QUARTER ENDED
JUNE 30, 2004

# Exhibit No.                        Description

|(31.1) | Certification
of the Chief Executive Officer Pursuant to Section 302.
|------ | ---------------------------------------------------------------------

|(31.2) | Certification
of the Chief Financial Officer Pursuant to Section 302.
|------ | ---------------------------------------------------------------------

|(32.1) | Written
Statement of the Chief Executive Officer and Chief Financial Officer
               Pursuant to Section 906.
|------ | --------------------------------------------------------------------------------------------------------------------

29