# FORM 10-Q

# UNITED
STATESSECURITIES 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 March 31, 2005
| | ---------------------------------------------

|[_] | 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 April 19, 2005, there were
17,470,823 shares of Common Stock outstanding.

---

# MIDWEST AIR GROUP,
INC.FORM 10-Q  For the period ended March 31, 2005

# INDEX

|           |                                                                                       | Page
|---------- | ------------------------------------------------------------------------------------- | ----
|           | PART I - FINANCIAL INFORMATION                                                        |     
|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 Financial Condition and Results of Operations | 12  
|Item 3.    | Quantitative and Qualitative Disclosures about Market Risk                            | 24  
|Item 4.    | Controls and Procedures                                                               | 24  
|           | PART II - OTHER INFORMATION                                                          
|Item 6.    | Exhibits                                                                              | 25  
|SIGNATURES |                                                                                       | 26  

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
March 31,
|------------------------------------------ | ----------------------------
|
|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                        |                             
|                                           |                             
|Loss before income tax credit              |                             
|Income tax credit                          |                             
|                                           |                             
|Net loss                                   |                             
|                                           |                             
|                                           |                             
|Loss per common share  basic              |                             
|                                           |                             
|Loss 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                                                           | March 31,
2005 | December 31,
2004
|---------------------------------------------------------------- | -------------- | -----------------
|Current assets:                                                  |                |                  
|Cash and cash equivalents                                        |                |                  
|Accounts receivable, net                                         |                |                  
|Inventories                                                      |                |                  
|Prepaid expenses and other assets                                |                |                  
|Restricted cash                                                  |                |                  
|Deferred income taxes                                            |                |                  
|                                                                 |                |                  
|Total current assets                                             |                |                  
|                                                                 |                |                  
|Property and equipment, net                                      |                |                  
|Aircraft purchase deposits and pre-delivery progress payments    |                |                  
|Other noncurrent 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                                            |                |                  
|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,      |                |                  
|18,178,398 and 18,178,398 shares issued at March 31, 2005        |                |                  
|and December 31, 2004, respectively                              |                |                  
|Additional paid-in capital                                       |                |                  
|Treasury stock, at cost                                          |                |                  
|Retained earnings                                                |                |                  
|Cumulative other comprehensive income (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)

|                                                               | Three Months Ended
March 31,
|-------------------------------------------------------------- | ----------------------------
|
|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 and other assets                              |                             
|Restricted cash                                                |                             
|Other noncurrent assets                                        |                             
|Accounts payable                                               |                             
|Deferred frequent flyer partner revenue                        |                             
|Accrued liabilities                                            |                             
|Unearned revenue                                               |                             
|Accrued pension                                                |                             
|Air traffic liability                                          |                             
|Other noncurrent liabilities                                   |                             
|                                                               |                             
|Net cash provided by operating activities                      |                             
|                                                               |                             
|Investing activities:                                          |                             
|Capital expenditures, net of non-cash incentives               |                             
|Aircraft purchase deposits and pre-delivery progress payments  |                             
|Return of purchase deposits and pre-delivery progress payments |                             
|Other, net                                                     |                             
|                                                               |                             
|Net cash (used in) provided by investing activities            |                             
|                                                               |                             
|Financing activities:                                          |                             
|Proceeds from pre-delivery progress payments                   |                             
|Payment of debt associated with progress payments              |                             
|Other, net                                                     |                             
|                                                               |                             
|Net cash provided by (used in) financing activities            |                             
|                                                               |                             
|Net increase 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 for:                                                 |                             
|Income taxes                                                   |                             
|Interest                                                       |                             

See notes to unaudited
condensed consolidated financial statements.

4

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

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

| | The
accompanying unaudited condensed consolidated financial statements for the three-month
periods ended March 31, 2005 and 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 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 related 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 Report on Form 10-Kfor the year ended
December 31, 2004. The results of operations for the three-month period ended March 31,
2005 are not necessarily indicative of the results that may be expected for the entire
fiscal year ending December 31, 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Certain
prior year consolidated financial statement items and related note disclosures have been
reclassed to conform to the current years presentation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is party to litigation incidental to its business. Management believes that no
existing litigation is likely to have a material adverse effect on the Companys
consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Midwest
Airlines, Inc. (Midwest Airlines) and Skyway Airlines, Inc.
(Skyway), doing business as Midwest Connect, constitute the operating 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 Form 10-K for the fiscal year ended December 31, 2004.
Financial information for the three-month periods ended March 31, 2005 and 2004, for the
two segments, Midwest Airlines and Skyway Airlines, follows (in thousands).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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# Three Months Ended
March 31, 2005

|                              | Midwest | Skyway | Elimination | Consolidated
|----------------------------- | ------- | ------ | ----------- | ------------
|Operating revenues            |         |        |             | $93,904     
|Loss before income tax credit |         |        |             | (11,426     
|Income tax credit             |         |        |             | --          
|Net loss                      |         |        |             | (11,426     

# Three Months Ended
March 31, 2004

|                              | Midwest | Skyway | Elimination | Consolidated
|----------------------------- | ------- | ------ | ----------- | ------------
|Operating revenues            |         |        |             | $85,738     
|Loss before income tax credit |         |        |             | (7,562      
|Income tax credit             |         |        |             | (2,647      
|Net loss                      |         |        |             | (4,915      

6

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|3. | Derivative
Instruments and Hedging Activities
|-- | ---------------------------------------------

The Company accounts for its fuel
hedge derivative instruments as cash flow hedges, as defined in Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities and the corresponding amendments under SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities. Therefore, all changes in the fair value of the derivative instruments
that are considered effective are recorded in other comprehensive income until the
underlying hedged fuel is consumed, when they are reclassified to the income statement as
an offset of fuel expense. The Company does not purchase or hold any derivative financial
instruments for trading purposes.

During 2004, the Company began
hedging a portion of the price risk related to anticipated future jet fuel requirements,
primarily through a collar option strategy. As of March 31, 2005, the Company had fuel
hedge collars in place covering a percentage of the total fuel consumption for 2005. The
collars for second quarter 2005 cover approximately 25% of the total estimated fuel
consumption with an average ceiling price of $1.44 per gallon and an average floor price
of $1.24 per gallon, which includes into-plane costs. As of March 31, 2005, there are
collars in place that cover 21% and 17% of the estimated fuel consumption for the third
and fourth quarters of 2005, respectively, and 5% of first quarter 2006. Ceiling prices
are set on average at $1.47 and $1.49 per gallon, and floor prices are set on average at
$1.28 and $1.30 per gallon for the third and fourth quarters of 2005, respectively. For
first quarter 2006, the average ceiling price is $1.70 and the average floor price is
$1.51. In first quarter 2005, the Company expensed a net amount of $0.1 million due to the
price of jet fuel falling below the floor prices of some of the collars. As of March 31,
2005, the Company recorded $3.0 million in prepaid expenses and other assets for future fuel prices
that may fall outside of the collar based on the anticipated cash flows from the fuel
hedge collars with an offset to other comprehensive loss.

|4. | Asset
Dispositions
|-- | ------------------

In first quarter 2004, the Company
recorded $1.2 million (pre-tax) of aircraft lease expense for two leased DC-9 aircraft
removed from Midwest Airlines service during the quarter.

|5. | New
Accounting Pronouncements
|-- | -----------------------------

In December 2004, the Financial
Accounting Standards Board issued SFAS No. 123 (Revised 2004), Share-Based
Payment (SFAS No. 123R). This standard requires expensing of stock
options and other share-based payments and supersedes SFAS No. 123, which had allowed
companies to choose between expensing stock options or showing proforma disclosure only.
This standard is effective for the Company as of the fiscal year beginning after June 15,
2005 and will apply to all awards granted, modified, cancelled or repurchased after the
effective date as well as the unvested portion of prior awards. On April 14, 2005, the SEC
postponed adoption of SFAS No. 123R. The Company will adopt the standard effective January
1, 2006 and believes it will not have a material effect on the financial statements.

7

---

|6. | 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 and engine lease payments, and engine
maintenance agreements. As of March 31, 2005, unused credit memos totaled $2.4 million,
compared with $5.8 million at March 31, 2004 and are 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 on the income statement over the term of the related leases,
whereas the related credit memo asset is being depleted as purchases are made.

|7. | Shareholders Equity
|-- | --------------------

At March 31, 2005, the Company had
two stock-based employee compensation plans and one stock plan for outside directors,
which are described more fully in Note 6 of the Notes to the Consolidated Financial
Statements of the Companys Annual Report on Form 10-K for the year ended
December 31, 2004. 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 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. See Note 5 for additional information.

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 and net loss per share for the three-month periods ended March 31,
2005 and 2004 would have been greater, as indicated in the proforma amounts below (in
thousands, except per share amounts):

|                                                    | Three Months Ended
March 31,
|--------------------------------------------------- | ----------------------------
|
|Net loss:                                           |                             
|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                                           |                             
|                                                    |                             

8

---

|                              |  | 
|----------------------------- |  | 
|
|Net loss per share - basic:   |  | 
|As reported                   |  | 
|Pro forma                     |  | 
|Net loss per share - diluted: |  | 
|As reported                   |  | 
|Pro forma                     |  | 

The following table is a
reconciliation of the weighted average shares outstanding for the three-month periods
ended March 31, 2005 and 2004 (in thousands):

|                                             | Three Months Ended
March 31,
|-------------------------------------------- | ----------------------------
|
|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 0 and 40 were
               excluded from the calculation for the three months ended March 31, 2005
and                2004, respectively, as their effect was anti-dilutive.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Stock
options outstanding under the 2003 All-Employee Stock Option Plan of 0 and
               189 were excluded from the calculation for the three months ended March
31, 2005                and 2004, respectively, as their effect was anti-dilutive.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Warrants
and convertible senior secured notes issued by the Company were                excluded
from the calculation for the three months ended March 31, 2005 and                2004,
respectively, as their effect was anti-dilutive.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Shares
issuable under the 1995 Stock Plan for Outside Directors of 47 and 35                were
excluded from the calculation for the three months ended March 31, 2005 and
               2004, respectively, as their effect was anti-dilutive.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In connection with the final
restructuring agreements with certain aircraft lessors and lenders, 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. The warrants expire in August 2013. None of the
warrants had been exercised as of March 31, 2005.

|8. | Income
Taxes
|-- | ------------

Due to accumulated losses and the
inability to offset net operating losses against deferred tax liabilities, the Company no
longer records federal income tax benefit on losses effective as of the second quarter of
2004. The effective tax rate decreased to 0.9% for the three-month period ended March 31,
2005 due to recording only state tax benefit. As of March 31, 2005, the Company has
recorded federal net operating losses of $31.7 million, which will begin to expire in 2023
and approximately $9.6 million in state net operating losses, which will begin to expire
in 2005. Due to the uncertainty of realizing the net operating losses, as of March 31, 2005, the Company has
recorded a valuation allowance of $18.7 million on the federal net operating losses and
$8.9 million on the state net operating losses.

9

---

|9. | Comprehensive
Loss
|-- | ------------------

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. For the three months
ended March 31, 2005 and 2004, comprehensive loss was $12.3 million and $6.8 million,
respectively. The difference between the net loss and comprehensive loss for the three
months ended March 31, 2005 and 2004 is due to the required accounting for the
Companys changes in additional minimum pension liabilities and unrealized gains or
losses on derivative financial instruments.

|10. | 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 the
organization that processes MasterCard/Visa transactions 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). In the first quarter of 2005, the Company and the credit card processor
agreed to an extension of the agreement until March 31, 2006. This extension includes a
provision that eliminates the financial covenants previously required of the Company and
allows the credit card processor to increase (up to 100%) or decrease the holdback percentage at any time. During first quarter 2005, the holdback amount was 90% of the credit card
processors risk. As of March 31, 2005, the restricted cash amount was approximately
$31.2 million.

The Company also has agreements with
American Express, Diners Club and Discover. Of these credit card processors, only American
Express had retained cash related to credit card processing, totaling $1.0 million
(resulting in an aggregate of $32.2 million in restricted cash for MasterCard/Visa and
American Express). If current industry conditions persist, other credit card processors
may require holdbacks as well. The aggregate amount of the risk exposure of all the credit
card processors (less amounts currently under holdback) as of March 31, 2005 was
approximately $11.4 million.

10

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|11. | Retirement
and Benefit Plans
|--- | ----------------------------

The net periodic benefit cost of
benefit pension plans for the three-month periods ending March 31, 2005 and 2004,
respectively, includes the following (in thousands):

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

In first quarter 2005, the Company
amended the Postretirement Welfare Plan (the Plan). The amendment reduced the
ongoing annual expense by $1.1 million. The Company will amortize the effect of the
amendment to the Plan on the recorded liability over the estimated remaining service period for the
affected employees.

The Company previously disclosed in
its financial statements for the year ended December 31, 2004, that it expected to
contribute approximately $1.5 million to its qualified pension plan in September 2005. As
of March 31, 2005, no contributions have been made.

|12. | Subsequent
Events
|--- | -----------------

At the Companys annual meeting
on April 20, 2005, shareholders approved the Midwest Air Group, Inc. 2005 Equity Incentive
Plan and the Midwest Air Group, Inc. 2005 Non-Employee Director Stock Plan. Under the 2005 Equity Incentive Plan,
awards can be granted in the form of stock options, stock appreciation rights and
restricted stock. Only shares of stock can be issued under the 2005 Non-Employee Director
Stock Plan.

11

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

# Overview

|Three Months Ended
March 31, |           
|---------------------------- | ----------
|2004                         | Net Change
|Total Operating Revenue      |           
|Total Operating Expenses     |           
|Operating Loss               |           
|Net Loss                     |           

In first quarter 2005 compared with
first quarter 2004, revenue increased 10.6% on a 7.0 percentage point increase in load
factor and a 20.7% increase in passenger traffic. The increase in revenue is due to
increased passenger traffic from competitive pricing adjustments, and schedule and service
enhancements announced in the first quarter of 2005. Unit costs (cost per available seat
mile) increased 8.7% primarily due to a 35.8% unit cost increase in fuel. Even with the
significant increase in revenue, higher-than-expected fuel prices and continuing overall
poor revenue yield, caused in part by excess industry capacity, prevented the Company from
returning to profitability.

Costs were negatively impacted by two
significant transactions in the first quarter of 2005. Midwest Airlines recorded a $0.7
million liability for severance payments for outplaced workers. Due to the settlement of
the Dornier Aviation (North America) Inc. Liquidating Trust (DANA) litigation,
Midwest Connect recorded expenses of $0.9 million, which reflects the settlement amount. First
quarter 2004 results include $1.2 million from costs related to the disposition of DC-9
aircraft.

Midwest Airlines revenue improved
9.5%, or $8.2 million, in first quarter 2005 compared with first quarter 2004. In the
first quarter of 2005, total revenue per available seat mile increased 4.2%  the
combination of a 6.9 percentage point increase in load factor and a 4.3% decrease in
revenue yield. The increase in revenue was due to increased passenger traffic from
competitive fare pricing changes; however, the increase in passenger revenue was partially
offset by a decline in charter revenue due to the cancellation of the National Hockey
League 2004-2005 season. Unit costs increased 8.2% in first quarter 2005 compared with
first quarter 2004, primarily due to an increase in fuel prices from an average of $1.17
per gallon in first quarter 2004 to an average of $1.59 per gallon in first quarter 2005.

Midwest Connect revenue improved
16.1%, or $2.7 million, in first quarter 2005 compared with first quarter 2004. In the
first quarter of 2005, total revenue per available seat mile increased 5.0%  the
combination of an 8.5 percentage point increase in load factor and a 10.6% decrease in
revenue yield. Also, passenger traffic increased more than 29%. Unit costs at Midwest
Connect increased 7.9%, primarily due to the increase in fuel prices and the DANA
litigation settlement.

12

---

Fuel prices were substantially higher
than expected during the first quarter of 2005, with price increases occurring throughout
the quarter and continuing into the second quarter. Fuel consumption totaled approximately
22.0 million gallons in the first quarter of 2005, an increase from the 20.9 million
gallons used during the first three months of 2004, primarily due to a 7.7% increase in
scheduled service operations (one take-off and landing); however, the increase was
partially offset by the Companys use of a greater number of more fuel-efficient
Boeing 717 aircraft. Each penny change in fuel price currently results in a change of
approximately $220,000 to quarterly operating results.

The Company continues to adjust to
changes in competition and industry pricing initiatives, particularly in the Milwaukee
market. In the first quarter of 2005, Northwest Airlines announced that by June 2005 it
will add additional flights from Milwaukee to Denver, Boston, Kansas City and New York.
This is the sixth expansion by Northwest in Milwaukee in the last two years. However, the
Companys share of passenger enplanements in Milwaukee as of March 2005 increased 4.1
percentage points year over year, to 42.8%. The Company intends to vigorously compete in
the changing environment by offering what it believes are superior airline services at
competitive fares.

During the first quarter of 2005, the
Company placed into service one Boeing 717 aircraft. The Company plans to place three
additional Boeing 717 aircraft into service in 2005.

During the first quarter of 2005, the
Companys unrestricted cash position increased $3.2 million to $84.7 million,
primarily due to seasonal fluctuations in the business and implementation of cost-saving
and cash management initiatives.

Looking forward, several initiatives
will be implemented in 2005 to help the Company achieve its strategic plan. These
initiatives include a redesigned dining services program and onboard video entertainment,
the consolidation of Midwest Airlines and Midwest Connect ground handling services in
Milwaukee, and schedule and service enhancements. These initiatives should contribute
positively to helping the Company to reach its goal to be cash flow neutral in 2005.

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

13

---

# Operating Statistics

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

|                                                | Three Months Ended
March 31,
|----------------------------------------------- | ----------------------------
|
|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 acquired but
not yet placed into service are excluded from the aircraft in service statistic. Numbers
in this table may not be recalculated due to rounding.

14

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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 March 31,
|------------------------------------------- | ----------------------------
|
|
|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 Maintenance, 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.

15

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# Three Months Ended
March 31, 2005 Compared WithThree Months Ended March 31, 2004

# Operating Revenues

Company operating revenues totaled
$112.0 million in first quarter 2005, a $10.7 million, or 10.6%, increase from first
quarter 2004. Passenger revenues accounted for 86.2% of total revenues and increased $12.6
million, or 15.0%, from first quarter 2004 to $96.6 million. The increase is attributable
to a 20.7% increase in passenger volume, as measured by scheduled service revenue
passenger miles, as well as a 7.0 percentage point increase in load factor. The increase
was partially offset by a 4.7% decrease in revenue yield. The decrease in revenue yield
was due primarily to competitive fare adjustments made during the first quarter of 2005 to
stimulate traffic.

Midwest Airlines passenger revenue
increased $10.1 million, or 14.9%, from 2004 to $77.9 million. The increase was primarily
the result of a 20.1% increase in passenger volume, as measured by scheduled service
revenue passenger miles. The increase in volume was partially offset by a decrease in
revenue yield of 4.3% due to the factors described above. Load factor increased from 63.6%
in 2004 to 70.5% in 2005. Capacity, as measured by scheduled service ASMs, increased 8.4%,
primarily due to a 6.3% increase in the number of segments (one take-off and landing).

Midwest Connect passenger revenue
increased $2.5 million, or 15.7%, from first quarter 2004 to $18.6 million. Passenger
volume increased 29.4% in first quarter 2005 compared with the same period in 2004, but
this increase was partially offset by a 10.6% decrease in revenue yield due to the factors
described above. Load factor increased 8.5 percentage points during this same period. Unit
costs at Midwest Connect increased 7.9%, primarily due to the increase in fuel prices and
the DANA litigation settlement.

Revenue from cargo, charter and other
services decreased $1.9 million in first quarter 2005. Revenue from charter sales
accounted for the majority of the change and decreased 53.1% versus first quarter 2004,
primarily due to the cancellation of the National Hockey League 2004-2005 season. The
decrease was partially offset by an increase in other transport, non-transport and mail
revenue.

# Operating Expenses

First quarter 2005 operating
expenses increased $16.4 million, or 14.7%, from first quarter 2004. The majority of the
increase was due to total aircraft fuel and oil increasing $10.7 million, or 43.4%, to
$35.2 million for the first quarter of 2005. Additionally, operating expenses increased
due to a $2.7 million increase in aircraft maintenance material and repair costs
resulting from a $1.3 million increase in engine costs related to the addition of four
Boeing 717 aircraft, as well as a 7.7% increase in scheduled service
operations, and an increase in purchased maintenance costs due to the increase in
scheduled service operations and an increase in repair costs. Total operating costs per
total ASM (unit costs) increased 8.7% to 11.5¢ in first quarter 2005.

16

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Salaries, wages and benefits
increased $1.5 million, or 4.2%, from first quarter 2004 to $36.5 million. The labor cost
increase is primarily due to an increase in wage and fringe benefit rates ($1.4 million),
as well as severance accruals for outplaced workers ($0.7 million), which were partially
offset by a decrease in head count ($0.7 million). On a cost per total ASM basis, labor
costs decreased 1.3% to 3.3¢ in 2005.

Aircraft fuel, oil and associated
taxes increased $10.7 million, or 43.4%, from first quarter 2004 to $35.2 million.
Into-plane fuel prices increased 35.7% in first quarter 2005, averaging $1.59 per gallon
versus $1.18 per gallon in first quarter 2004, and resulted in a $9.3 million (pre-tax)
unfavorable price impact (calculated by applying 2004 prices to actual gallons consumed in
2005 and comparing the result with actual 2005 expense). Fuel consumption increases
resulted in a $1.4 million (pre-tax) unfavorable impact in the quarter (calculated by
applying 2004 prices to the actual change in gallons consumed in 2005 relative to 2004),
primarily as a result of an increase in the number of block hours (the time between aircraft gate departure and aircraft gate arrival).

Commissions for travel agents and
commissions related to credit card transactions increased $0.5 million, or 19.8%, from
first quarter 2004 to $2.9 million. The majority of the increase was due to a 20.7%
increase in passenger traffic and an increase in credit card commissions. Commissions as a
percentage of passenger revenue increased from 2.9% in first quarter 2004 to 3.0% in first
quarter 2005.

Station rentals and landing fees
increased $0.4 million, or 3.4% from first quarter 2004 to $11.4 million. The increase is
primarily due to an increase in ground handling and landing fees ($0.3 million) and trip
interruption expenses ($0.1 million).

Aircraft maintenance material and
repair costs increased $2.7 million, or 30.7% from first quarter 2004 to $11.3 million.
The increase is primarily due to a $1.3 million increase in engine costs related to the
addition of four Boeing 717 aircraft, as well as a 7.7% increase in scheduled service
operations. Additionally, purchased maintenance increased $1.0 million due to the increase
in scheduled service operations and an increase in repair costs.

Depreciation and amortization
decreased $0.4 million, or 8.1%, from first quarter 2004 to $4.2 million. On a cost per
total ASM basis, these costs decreased 12.9%. Depreciation was lower as the owned DC-9
fleet was essentially replaced quarter over quarter with leased Boeing 717 aircraft.

Aircraft rental costs increased $1.7
million, or 17.4%, from first quarter 2004 to $11.6 million. These costs increased $2.9
million related to the addition of four leased Boeing 717 aircraft to the Midwest Airlines
fleet quarter over quarter. Included in the first quarter 2004 balance is $1.2 million
associated with the disposition of DC-9 aircraft. On a cost per total ASM basis, these
costs increased 11.2%.

17

---

Other operating expenses decreased
$0.5 million, or 3.9%, from first quarter 2004 to $13.0 million. The cost decreases were
primarily due to a decrease in charter expenses as a result of the cancellation of the
National Hockey League 2004-2005 season ($0.8 million) and a reduction in advertising
expenses ($0.5 million), which were partially offset by an increase in legal costs ($0.8
million), including the DANA litigation settlement amount. On a cost per total ASM
basis, other operating expenses decreased 9.0%.

# Credit for Income Taxes

Income tax credit for first quarter
2005 was $0.1 million, a $3.8 million decrease from the 2004 credit of $3.9 million. The
effective tax rates for the first quarters of 2005 and 2004 were 0.9% and 36.5%,
respectively. Due to accumulated losses, the Company discontinued recording federal
income tax benefit on losses beginning with second quarter 2004.

# Net Loss

Net loss for first quarter 2005 was
$15.9 million, an increase of $9.1 million from the first quarter 2004 net loss.

# Liquidity and Capital
Resources

The Companys unrestricted cash
and cash equivalents totaled $84.7 million at March 31, 2005, compared with $81.5 million
at December 31, 2004. At March 31, 2005, the restricted cash balance was $36.8 million,
compared with $29.1 million on December 31, 2004. The restricted cash balance primarily
consists of holdback amounts, insurance deposits and collateral for letters of credit. The
change in restricted cash is primarily due to an increase in volume related to the credit
card processing agreement for MasterCard/Visa transactions.

The increase of $3.2 million in the
unrestricted cash balance from December 31, 2004 to March 31, 2005 reflects seasonal
fluctuations in the business and the realization of savings from cost-saving and cash
management initiatives. The increase was partially offset by an increase in the amount of
cash held back by the processor of MasterCard/Visa transactions due to an increase in
volume. As noted in Note 10 to the condensed consolidated financial statements, the credit
card processor can increase (up to 100%) or decrease the holdback amount at any time.

As of March 31, 2005, the Company had
a working capital surplus of $24.0 million compared with a $30.5 million surplus on
December 31, 2004. The reduction in working capital as of March 31, 2005 is primarily
related to an increase in air traffic liability (liability for airline tickets purchased but not yet used), as
well as an increase in accounts payable and various other accrued liabilities due to cash
management strategies.

Operating Activities

Net cash provided by operations for
the three months ended March 31, 2005 totaled $4.1 million. This is primarily related to
the change in accounts payable, accrued liabilities, restricted cash and air traffic
liability. The change also reflects the effects of credits 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
and engine lease payments, and engine maintenance agreements. As of March 31, 2005, unused
credit memos totaled $2.4 million and are recorded as Other Assets in the condensed
consolidated balance sheet. For the most part, credits available for aircraft lease
payments have been used up and, in the future, the Company expects it will 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 income statement
benefit of these credit memos is being recognized over the term of the leases.

18

---

Investing Activities

Net cash used in investing activities
for the three months ended March 31, 2005 totaled $1.8 million. This is primarily due to a
decrease in aircraft purchase deposits that had been returned for the one Boeing 717
delivery in 2005, which was offset by an increase in aircraft purchase deposits and
pre-delivery progress payments related to future deliveries of Boeing 717 aircraft and an
increase in capital expenditures. Capital spending totaled $2.6 million for the quarter;
however, non-cash incentives were used for a portion of such spending, with a cash outlay
of $2.0 million for the quarter ended March 31, 2005. Capital expenditures consisted
primarily of costs associated with the acquisition of additional spare parts for the
Boeing 717 fleet and dining services equipment.

Financing Activities

Net cash provided by financing
activities for the three months ended March 31, 2005 was $0.9 million, primarily related
to the return of progress payments to Kreditanstalt fur Wiederaufbau Bank
(KfW) associated with one Boeing 717 aircraft delivered to the Company during
2005. The progress payments were originally provided to The Boeing Company
(Boeing) by KfW on behalf of Rolls-Royce Deutschland Ltd. & Co. KG
(Rolls-Royce). The change from 2004 is also due to a reduction in the
remaining lease obligation for the DC-9 aircraft retirements in accordance with the
agreement terms.

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 4 to the
Consolidated Financial Statements in the Companys Annual Report on Form 10-K
for the year ended December 31, 2004. As of March 31, 2005, the Company owed $13.6 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
nearly completed.

With the KfW loan agreement and a
commitment from Boeing Capital Corporation (BCC) to finance 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.

19

---

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 March 31, 2005, the
Qualified Plan assets were invested primarily in equities and fixed income instruments.
Additional discussion of Qualified Plan investment strategy is included in Note 10 to the
Consolidated Financial Statements contained in the Companys Annual Report on Form
10-Kfor the year ended December 31, 2004.

As discussed in Note 4 to the
Consolidated Financial Statements contained in the Companys Annual Report on Form
10-Kfor the year ended December 31, 2004, the Company issued promissory notes (the
Basic Moratorium Notes) to its lessors and lenders as part of the
restructuring lease and debt agreements. The aggregate principal amount of these notes is
$7.5 million. Principal and interest (fixed at 10%) on these Basic Moratorium Notes are
payable, in arrears, in 36 monthly installments. As of March 31, 2005, the Company owed
$5.6 million under the Basic Moratorium Notes.

As a result of the restructuring of
the lease and debt agreements, the Company significantly reduced 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
$27.7 million as of March 31, 2005. This contingent obligation terminates in July 2006.

2005 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 2005 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 from first quarter
2005 revenue environment, or the failure of fuel prices to decline from first quarter 2005
prices, the Company believes current liquidity and cash flow from operations will be
sufficient to fund current operations through 2005. Key cash flow items for 2005 and
beyond include:

| | The
Company anticipates total capital spending to be approximately $15.0 million for 2005 and
$8-10 million annually in 2006 and 2007, excluding aircraft acquisitions that the Company
expects to 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. A portion of the capital spending will be funded using credit memos.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

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| | The
Companys goal is to be cash flow neutral in 2005 through increases in revenue and
through the realization of targeted annualized costs savings of $15-20 million compared
with 2004 from changes in labor productivity, insourcing, outsourcing and other cost
reductions. The Company expects that initiatives already announced and implemented should
yield approximately $10 million in annualized savings. The Company realized some of these
savings in the first quarter of 2005, but expects to realize most of these savings in the
remaining three quarters of 2005.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company estimates net interest expense at $1.0 million in 2005.
|- | -------------------------------------------------------------------

| | The
Company expects non-cash expenses arising primarily from depreciation to contribute $17.0
million to annual cash flow in 2005.
|- | ----------------------------------------------------------------------------------------------------------------------------------

| | The
Company estimates that defined benefit pension plan contributions to be paid in September
2005 will amount to approximately $1.5 million.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | Principal
payments due on the lender and lessor moratorium 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 4 to the
Consolidated Financial Statements contained in the Companys Annual Report on
Form 10-Kfor the year ended December 31, 2004. The Company believes all covenants
will be complied with during 2005 unless significant unforeseen events occur.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Forward-Looking
Statements

This Form 10-Q filing, particularly
the Pending Developments section below and the Overview and
2005 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 Part 1 of the
Companys Annual Report on Form 10-K for the year ended December 31, 2004 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;
|- | ----------------------------------------------------------------------------------------------------------------------------

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

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

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

| | the
Company's ability to effectively compete;
|- | ---------------------------------------------

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

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

| | uncertainties
concerning the Company's ability to attract and retain people in key positions;
|- | ---------------------------------------------------------------------------------------------

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

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

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

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

21

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

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

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

| | 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;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

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

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

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.

# Pending Developments

Property Tax Exemption 
On November 7, 2003, a Dane County, Wisconsin, circuit court, in an action brought by
Northwest Airlines, Inc., against the State of Wisconsin, declared invalid the Wisconsin
statute that provides the hub airline exemption from Wisconsin ad valorem property taxes.
Savings to the Company from the exemption had been approximately $2.0 million annually.
However, the Company estimates savings could be as high as $7.0 million annually by 2010.
The State of Wisconsin has appealed the ruling. The Company has intervened in the case and
joined in the appeal. The appellate court has certified the case to the Wisconsin Supreme
Court and the case has been accepted. The Company believes the appeal will be successful
and has not recorded any reserve with respect to this matter.

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. In the first
quarter of 2005, the Company engaged in mediation and agreed to settle the matter by
paying Dornier Aviation (North America) $850,000, which was paid in April 2005.

22

---

Regional Services Alliance
 In April 2004, Skyway announced that 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, while operating as Midwest Connect, has provided
connections to Midwest Airlines and point-to-point service in select Midwestern markets.
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.

Change to New York Stock Exchange
Listing Standards  The Companys common stock is listed on the New York
Stock Exchange. If the Company does not comply with the listing standards of the New York
Stock Exchange, then the Exchange may initiate the delisting process.  The risk of
delisting is greater if the New York Stock Exchange adopts a proposal to modify its
listing standards to increase the dollar thresholds for the average total market
capitalization and the average shareholders equity that a listed company is
required to maintain.
Delisting could materially reduce the liquidity of the Companys common stock and
could result in a corresponding material reduction in the price of the Companys
common stock. The lack of liquidity could make it more difficult for the Company to raise
capital in the future.

23

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# Item 3. Quantitative and
Qualitative Disclosures about Market Risk

Except as discussed below, there have
been no material changes in the Companys market risk from the information provided
in Item 7A. Quantitative and Qualitative Disclosure about Market Risk of the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.

At April 30, 2005, 25% of second and
third quarter 2005 estimated fuel consumption is hedged at a ceiling price ranging from
$1.44 to $1.51 per gallon and a floor price ranging from $1.24 to $1.32 per gallon, which
includes into-plane costs. The purpose of these hedges is to provide protection from
rapidly escalating prices. Additionally, there are hedges in place for fourth quarter 2005
for approximately 22% and first quarter 2006 for approximately 10% of total expected fuel
usage.

As of April 30, 2005, all the
Companys fuel collar agreements were with one counterparty. The limited number of
counterparties exposes the Company to financial risk in the event of nonperformance by the
counterparty. The Company does not expect the counterparty to fail to meet its
obligations. To manage this risk, the Company will periodically review and consider other
counterparties to potentially limit the Companys exposure to a single counterparty.

# 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.

24

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# PART II  OTHER
INFORMATION

# Item 6. 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.
|------ | -------------------------------------------------------------------------------------------------------------------------

25

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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:  May 3, 2005 | By /s/ Timothy E. Hoeksema          
|                   | Timothy E. Hoeksema                 
|                   | Chairman of the Board, President and
|                   | Chief Executive Officer             
|Date:  May 3, 2005 | By /s/ Curtis E. Sawyer             
|                   | Curtis E. Sawyer                    
|                   | Senior Vice President and           
|                   | Chief Financial Officer             

26

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

# FOR THE QUARTER ENDED
MARCH 31, 2005

|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.
|------ | -------------------------------------------------------------------------------------------------------------------------

27