##### Table of Contents



FORM 10-Q
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
 For the quarterly period ended
June 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
 For the transition period from
    
    
    
    toCommission file number
    
    1-13934
 MIDWEST AIR GROUP, INC.
  Wisconsin
    
    
    
    39-1828757(State or other jurisdiction of
incorporation or organization)
    
    
    
    (I.R.S. Employer Identification No.)
 Oak Creek, Wisconsin 53154
 414-570-4000
  þ o
  þ o




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MIDWEST AIR GROUP, INC.
FORM 10-Q
For the period ended June 30, 2005
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Operations
    
    
    2Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Cash Flows
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Results of
Operations and Financial Condition
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28Item 6.
    
    Exhibits
    
    
    29SIGNATURES
    
    
    30Certification of Chief Executive OfficerCertification of Chief Financial OfficerSection 906 Certification of CEO and CFO
  1




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##### Table of Contents



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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating revenues:Passenger service
    
    $
    116,220
    
    
    $
    92,313
    
    
    $
    212,770
    
    
    $
    176,244Cargo
    
    
    1,477
    
    
    
    1,233
    
    
    
    3,124
    
    
    
    2,296Other
    
    
    13,864
    
    
    
    13,347
    
    
    
    27,692
    
    
    
    29,663Total operating revenues
    
    
    131,561
    
    
    
    106,893
    
    
    
    243,586
    
    
    
    208,203Operating expenses:Salaries, wages and benefits
    
    
    36,473
    
    
    
    35,061
    
    
    
    73,020
    
    
    
    70,119Aircraft fuel and oil
    
    
    40,555
    
    
    
    24,547
    
    
    
    75,760
    
    
    
    49,094Commissions
    
    
    3,482
    
    
    
    2,671
    
    
    
    6,406
    
    
    
    5,113Dining services
    
    
    3,042
    
    
    
    1,847
    
    
    
    4,938
    
    
    
    3,809Station rental, landing and other fees
    
    
    10,373
    
    
    
    9,567
    
    
    
    21,749
    
    
    
    20,569Aircraft maintenance materials and repairs
    
    
    13,431
    
    
    
    10,101
    
    
    
    24,717
    
    
    
    18,736Depreciation and amortization
    
    
    4,078
    
    
    
    4,346
    
    
    
    8,233
    
    
    
    8,867Aircraft rentals
    
    
    12,987
    
    
    
    9,434
    
    
    
    24,559
    
    
    
    19,289Other
    
    
    15,326
    
    
    
    12,220
    
    
    
    28,300
    
    
    
    25,722Total operating expenses
    
    
    139,747
    
    
    
    109,794
    
    
    
    267,682
    
    
    
    221,318Operating loss
    
    
    (8,186
    )
    
    
    (2,901
    )
    
    
    (24,096
    )
    
    
    (13,115
    )Other income (expense):Interest income
    
    
    902
    
    
    
    387
    
    
    
    1,634
    
    
    
    737Interest expense
    
    
    (892
    )
    
    
    (946
    )
    
    
    (1,791
    )
    
    
    (1,889
    )Other, net
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (8
    )Total other income (expense)
    
    
    10
    
    
    
    (563
    )
    
    
    (157
    )
    
    
    (1,160
    )Loss before income tax provision (credit)
    
    
    (8,176
    )
    
    
    (3,464
    )
    
    
    (24,253
    )
    
    
    (14,275
    )Income tax provision (credit)
    
    
    
    
    
    
    7
    
    
    
    (140
    )
    
    
    (3,940
    )Net loss
    
    $
    (8,176
    )
    
    $
    (3,471
    )
    
    $
    (24,113
    )
    
    $
    (10,335
    )Loss per common share  basic
    
    $
    (0.47
    )
    
    $
    (0.20
    )
    
    $
    (1.38
    )
    
    $
    (0.59
    )Loss per common share  diluted
    
    $
    (0.47
    )
    
    $
    (0.20
    )
    
    $
    (1.38
    )
    
    $
    (0.59
    )Weighted average shares  basic
    
    
    17,489,377
    
    
    
    17,417,911
    
    
    
    17,480,151
    
    
    
    17,411,900Weighted average shares  diluted
    
    
    17,489,377
    
    
    
    17,417,911
    
    
    
    17,480,151
    
    
    
    17,411,900
  2




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MIDWEST AIR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
 June 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    84,735
    
    
    $
    81,492Accounts receivable, net
    
    
    5,783
    
    
    
    4,555Inventories
    
    
    9,334
    
    
    
    9,036Prepaid expenses and other assets
    
    
    16,018
    
    
    
    10,468Restricted cash
    
    
    44,421
    
    
    
    29,134Deferred income taxes
    
    
    6,695
    
    
    
    7,324Total current assets
    
    
    166,986
    
    
    
    142,009Property and equipment, net
    
    
    180,054
    
    
    
    181,863Aircraft purchase deposits and pre-delivery progress payments
    
    
    20,908
    
    
    
    21,621Other noncurrent assets, net
    
    
    10,455
    
    
    
    15,236Total assets
    
    $
    378,403
    
    
    $
    360,729LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,436
    
    
    $
    7,345Income taxes payable
    
    
    
    
    
    
    78Current maturities of long-term debt
    
    
    3,203
    
    
    
    3,185Air traffic liability
    
    
    65,310
    
    
    
    46,136Unearned revenue
    
    
    13,818
    
    
    
    13,956Accrued liabilities
    
    
    51,625
    
    
    
    40,837Total current liabilities
    
    
    146,392
    
    
    
    111,537Long-term debt
    
    
    48,834
    
    
    
    50,478Long-term debt on pre-delivery progress payments
    
    
    14,303
    
    
    
    14,096Deferred income taxes
    
    
    8,820
    
    
    
    7,977Accrued pension and other postretirement benefits
    
    
    21,684
    
    
    
    19,523Deferred frequent flyer partner revenue
    
    
    6,884
    
    
    
    6,960Deferred revenue, credits & gains
    
    
    54,715
    
    
    
    50,698Other noncurrent liabilities
    
    
    16,414
    
    
    
    18,081Total liabilities
    
    
    318,046
    
    
    
    279,350Shareholders 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,
18,388,110 and 18,178,398 shares issued at June 30, 2005
and December 31, 2004, respectively
    
    
    184
    
    
    
    182Additional paid-in capital
    
    
    46,539
    
    
    
    46,063Treasury stock, at cost
    
    
    (15,580
    )
    
    
    (15,580
    )Retained earnings
    
    
    27,520
    
    
    
    51,633Cumulative other comprehensive income (loss)
    
    
    2,015
    
    
    
    (919
    )Unearned compensation restricted stock
    
    
    (321
    )
    
    
    Total shareholders equity
    
    
    60,357
    
    
    
    81,379Total liabilities and shareholders equity
    
    $
    378,403
    
    
    $
    360,729
  3




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MIDWEST AIR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 Six Months EndedJune 30,2005
    
    
    2004Operating activities:Net loss
    
    $
    (24,113
    )
    
    $
    (10,335
    )Items not involving the use of cash:Depreciation and amortization
    
    
    8,233
    
    
    
    8,867Deferred income taxes
    
    
    1,472
    
    
    
    (2,096
    )Other, net
    
    
    1,501
    
    
    
    6,354Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,142
    )
    
    
    (1,244
    )Inventories
    
    
    344
    
    
    
    20Prepaid expenses and other assets
    
    
    (3,230
    )
    
    
    (703
    )Other noncurrent assets
    
    
    1,252
    
    
    
    297Accounts payable
    
    
    5,091
    
    
    
    466Deferred frequent flyer partner revenue
    
    
    (179
    )
    
    
    (756
    )Accrued liabilities
    
    
    11,430
    
    
    
    (2,838
    )Unearned revenue
    
    
    (35
    )
    
    
    250Accrued pension
    
    
    1,981
    
    
    
    2,502Air traffic liability
    
    
    19,174
    
    
    
    925Other noncurrent liabilities
    
    
    (776
    )
    
    
    2,793Net cash provided by operating activities
    
    
    20,003
    
    
    
    4,502Investing activities:Capital expenditures, net of non-cash incentives
    
    
    (5,702
    )
    
    
    (1,631
    )Aircraft purchase deposits and pre-delivery progress payments
    
    
    (6,292
    )
    
    
    Return of purchase deposits and pre-delivery progress payments
    
    
    6,965
    
    
    
    13,512Restricted cash
    
    
    (15,287
    )
    
    
    1,812Other, net
    
    
    1,702
    
    
    
    2,548Net cash (used in) provided by investing activities
    
    
    (18,614
    )
    
    
    16,241Financing activities:Proceeds from pre-delivery progress payments
    
    
    6,031
    
    
    
    Payment of debt associated with progress payments
    
    
    (5,785
    )
    
    
    (11,223
    )Other, net
    
    
    1,608
    
    
    
    5,442Net cash provided by (used in) financing activities
    
    
    1,854
    
    
    
    (5,781
    )Net increase in cash and cash equivalents
    
    
    3,243
    
    
    
    14,962Cash and cash equivalents, beginning of period
    
    
    81,492
    
    
    
    88,267Cash and cash equivalents, end of period
    
    $
    84,735
    
    
    $
    103,229Supplemental non-cash activities:Non-cash incentives
    
    $
    3,042
    
    
    $
    5,947Supplemental cash flow information:Cash paid for:Income taxes
    
    $
    13
    
    
    $
    13Interest
    
    
    908
    
    
    
    631
  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, 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-K
for the year ended December 31, 2004. The results of operations for the three- and six-month
periods ended June 30, 2005 are not necessarily indicative of the results 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 materially adverse effect on the Companys consolidated
financial statements.2.
    
    Segment ReportingMidwest 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s Annual Report onForm 10-K for the year ended December 31, 2004. Financial
information for the three- and six-month periods ended June 30, 2005 and 2004, for the two
segments, Midwest Airlines and Skyway, follows (in thousands).
 5




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Segment Information
 Three Months Ended June 30, 2005
 Midwest
    
    
    Skyway
    
    
    Elimination
    
    
    ConsolidatedOperating revenues
    
    $
    109,959
    
    
    $
    24,000
    
    
    
    ($2,398
    )
    
    $
    131,561Loss before income tax provision
    
    
    (7,789
    )
    
    
    (387
    )
    
    
    
    
    
    
    (8,176
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (7,789
    )
    
    
    (387
    )
    
    
    
    
    
    
    (8,176
    )
 Three Months Ended June 30, 2004
 Midwest
    
    
    Skyway
    
    
    Elimination
    
    
    ConsolidatedOperating revenues
    
    $
    88,447
    
    
    $
    19,781
    
    
    
    ($1,335
    )
    
    $
    106,893(Loss) income before income tax provision
    
    
    (3,681
    )
    
    
    217
    
    
    
    
    
    
    
    (3,464
    )Income tax provision
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Net (loss) income
    
    
    (3,681
    )
    
    
    210
    
    
    
    
    
    
    
    (3,471
    )
 Six Months Ended June 30, 2005
 Midwest
    
    
    Skyway
    
    
    Elimination
    
    
    ConsolidatedOperating revenues
    
    $
    203,863
    
    
    $
    43,328
    
    
    
    ($3,605
    )
    
    $
    243,586Loss before income tax credit
    
    
    ($19,215
    )
    
    
    ($5,038
    )
    
    
    
    
    
    
    (24,253
    )Income tax credit
    
    
    
    
    
    
    ($140
    )
    
    
    
    
    
    
    (140
    )Net loss
    
    
    ($19,215
    )
    
    
    ($4,898
    )
    
    
    
    
    
    
    (24,113
    )
 Six Months Ended June 30, 2004
 Midwest
    
    
    Skyway
    
    
    Elimination
    
    
    ConsolidatedOperating revenues
    
    $
    174,185
    
    
    $
    36,432
    
    
    
    ($2,414
    )
    
    $
    208,203Loss before income tax credit
    
    
    (11,243
    )
    
    
    (3,032
    )
    
    
    
    
    
    
    (14,275
    )Income tax credit
    
    
    (2,647
    )
    
    
    (1,293
    )
    
    
    
    
    
    
    (3,940
    )Net loss
    
    
    (8,596
    )
    
    
    (1,739
    )
    
    
    
    
    
    
    (10,335
    )
 6




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3. Derivative Instruments and Hedging Activities
   4. Asset Dispositions
  5. New Accounting Pronouncements
  7




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6. Non-Cash Incentives
  7. Shareholders Equity
 Annual Report on Form 10-K
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss:As reported
    
    $
    (8,176
    )
    
    $
    (3,471
    )
    
    $
    (24,113
    )
    
    $
    (10,335
    )Add: Total stock-based
employee compensation
expense recognized
    
    
    36
    
    
    
    116
    
    
    
    72
    
    
    
    186Deduct: Total stock-based
employee compensation
expense determined under
fair value based methods
    
    
    (161
    )
    
    
    (336
    )
    
    
    (439
    )
    
    
    (624
    )Pro forma
    
    $
    (8,301
    )
    
    $
    (3,691
    )
    
    $
    (24,495
    )
    
    $
    (10,773
    )
 8




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss per share  basic:As reported
    
    $
    (0.47
    )
    
    $
    (0.20
    )
    
    $
    (1.38
    )
    
    $
    (0.59
    )Pro forma
    
    $
    (0.47
    )
    
    $
    (0.21
    )
    
    $
    (1.40
    )
    
    $
    (0.62
    )Net loss per share  diluted:As reported
    
    $
    (0.47
    )
    
    $
    (0.20
    )
    
    $
    (1.38
    )
    
    $
    (0.59
    )Pro forma
    
    $
    (0.47
    )
    
    $
    (0.21
    )
    
    $
    (1.40
    )
    
    $
    (0.62
    )
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted average shares outstanding
    
    
    17,489
    
    
    
    17,418
    
    
    
    17,480
    
    
    
    17,412Effect of dilutive securities:Stock options (1)(2)(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible debt (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares issuable under the Stock
Plans for Outside Directors
(5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares
outstanding assuming dilution
    
    
    17,489
    
    
    
    17,418
    
    
    
    17,480
    
    
    
    17,412
 (1)
    
    Stock options outstanding under the 1995 Stock Option Plan of 0 and 44 were excluded
from the calculation for the three months ended June 30, 2005 and 2004, respectively, as
their effect was anti-dilutive. Stock options outstanding under the 1995 Stock Option Plan
of 0 and 41 were excluded from the calculations for the six months ended June 30, 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 190
were excluded from the calculation for the three and six months ended June 30, 2005 and
2004, respectively, as their effect was anti-dilutive.
 (3)
    
    Stock options outstanding under the 2005 Equity Incentive Plan of 148 and 75 were
excluded from the calculation for the three and six months ended June 30, 2005,
respectively, as their effect was anti-dilutive.
 (4)
    
    Warrants and convertible senior secured notes issued by the Company were excluded from
calculation for the three and six months ended June 30, 2005 and 2004, as their effect was
anti-dilutive. These represent 1,571,467 shares of the Companys common stock at an
exercise price of $4.72.
 (5)
    
    Shares issuable under the 1995 Stock Plan for Outside Directors and 2005 Non-Employee
Director Stock Plan of 60 and 36 were excluded from the calculation for the three months
ended June 30, 2005 and 2004, respectively, as their effect was anti-dilutive. Shares
issuable under the 1995 Stock Plan for Outside Directors and 2005 Non-Employee Director
Stock Plan of 63 and 36 were excluded from the calculations for the six months ended June
30, 2005 and 2004, respectively, as their effect was anti-dilutive.
  8. Income Taxes
  9




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9. Comprehensive Loss
  10. Financing Agreements
   10




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11. Retirement and Benefit Plans
  Pension Benefits
    
    
    
    
    
    
    
    
    
    
    Other BenefitsThree Months
    
    
    Six Months
    
    
    Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,
    
    
    Ended June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Components of Net
Periodic Benefit CostService cost
    
    $
    363
    
    
    $
    325
    
    
    $
    726
    
    
    $
    650
    
    
    $
    109
    
    
    $
    251
    
    
    $
    218
    
    
    $
    502Interest cost
    
    
    338
    
    
    
    302
    
    
    
    676
    
    
    
    603
    
    
    
    98
    
    
    
    177
    
    
    
    196
    
    
    
    353Expected return on assets
    
    
    (94
    )
    
    
    (90
    )
    
    
    (188
    )
    
    
    (180
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of:Prior service cost (credit)
    
    
    80
    
    
    
    80
    
    
    
    160
    
    
    
    160
    
    
    
    (98
    )
    
    
    (7
    )
    
    
    (196
    )
    
    
    (15
    )Actuarial loss
    
    
    133
    
    
    
    115
    
    
    
    266
    
    
    
    231
    
    
    
    45
    
    
    
    44
    
    
    
    90
    
    
    
    87Plan amendment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (83
    )
    
    
    
    
    
    
    (167
    )
    
    
    Total bet periodic benefit cost
    
    $
    820
    
    
    $
    732
    
    
    $
    1640
    
    
    $
    1,464
    
    
    $
    71
    
    
    $
    465
    
    
    $
    141
    
    
    $
    927
   12. Reclassification
  11




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
 Overview
 (Dollars in millions)
    
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    Net Change
    
    
    2005
    
    
    2004
    
    
    Net ChangeTotal Operating Revenue
    
    $
    131.6
    
    
    $
    106.9
    
    
    $
    24.7
    
    
    $
    243.6
    
    
    $
    208.2
    
    
    $
    35.4Total Operating Expenses
    
    $
    139.7
    
    
    $
    109.8
    
    
    $
    29.9
    
    
    $
    267.7
    
    
    $
    221.3
    
    
    $
    46.4Operating Loss
    
    $
    (8.2
    )
    
    $
    (2.9
    )
    
    $
    (5.3
    )
    
    $
    (24.1
    )
    
    $
    (13.1
    )
    
    $
    (11.0
    )Net Loss
    
    $
    (8.2
    )
    
    $
    (3.5
    )
    
    $
    (4.7
    )
    
    $
    (24.1
    )
    
    $
    (10.3
    )
    
    $
    (13.8
    )
     12




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##### Table of Contents



13




---



##### Table of Contents



Operating Statistics
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Midwest Airlines OperationsOrigin & Destination Passengers
    
    
    757,471
    
    
    
    578,547
    
    
    
    1,419,221
    
    
    
    1,131,755Revenue Passenger Miles (000s)
    
    
    787,011
    
    
    
    595,860
    
    
    
    1,488,306
    
    
    
    1,179,937Scheduled Service Available Seat Miles (000s)
    
    
    1,054,049
    
    
    
    877,531
    
    
    
    2,049,351
    
    
    
    1,795,313Total Available Seat Miles (000s)
    
    
    1,065,745
    
    
    
    908,496
    
    
    
    2,082,699
    
    
    
    1,875,815Load Factor (%)
    
    
    74.7
    %
    
    
    67.9
    %
    
    
    72.6
    %
    
    
    65.7
    %Revenue Yield
    
    $
    0.1190
    
    
    $
    0.1227
    
    
    $
    0.1153
    
    
    $
    0.1194Revenue per Scheduled Service ASM (1)
    
    $
    0.0938
    
    
    $
    0.0871
    
    
    $
    0.0884
    
    
    $
    0.0821Total Cost per Total ASM
    
    $
    0.1108
    
    
    $
    0.1009
    
    
    $
    0.1074
    
    
    $
    0.0984Total Cost per Total ASM (ex-fuel cost) (2)
    
    $
    0.0782
    
    
    $
    0.0780
    
    
    $
    0.0763
    
    
    $
    0.0760Average Passenger Trip Length (miles)
    
    
    1,039
    
    
    
    1,030
    
    
    
    1,049
    
    
    
    1,043Number of Flights
    
    
    11,349
    
    
    
    9,194
    
    
    
    21,456
    
    
    
    18,701Into-plane Fuel Cost per Gallon
    
    $
    1.73
    
    
    $
    1.23
    
    
    $
    1.66
    
    
    $
    1.20Full-time Equivalent Employees at End of Period
    
    
    1,813
    
    
    
    2,008
    
    
    
    1,813
    
    
    
    2,008Aircraft in Service at End of Period
    
    
    32
    
    
    
    28
    
    
    
    32
    
    
    
    28Midwest Connect OperationsOrigin & Destination Passengers
    
    
    210,677
    
    
    
    169,822
    
    
    
    397,411
    
    
    
    320,733Revenue Passenger Miles (000s)
    
    
    61,625
    
    
    
    51,002
    
    
    
    116,033
    
    
    
    93,037Scheduled Service Available Seat Miles (000s)
    
    
    95,625
    
    
    
    88,725
    
    
    
    189,721
    
    
    
    174,027Total Available Seat Miles (000s)
    
    
    95,646
    
    
    
    88,725
    
    
    
    189,989
    
    
    
    174,027Load Factor (%)
    
    
    64.4
    %
    
    
    57.5
    %
    
    
    61.2
    %
    
    
    53.5
    %Revenue Yield
    
    $
    0.3668
    
    
    $
    0.3770
    
    
    $
    0.3553
    
    
    $
    0.3796Revenue per Scheduled Service ASM (1)
    
    $
    0.2422
    
    
    $
    0.2222
    
    
    $
    0.2231
    
    
    $
    0.2086Total Cost per Total ASM
    
    $
    0.2510
    
    
    $
    0.2192
    
    
    $
    0.2506
    
    
    $
    0.2255Total Cost per Total ASM (ex-fuel cost) (2)
    
    $
    0.1913
    
    
    $
    0.1768
    
    
    $
    0.1932
    
    
    $
    0.1839Average Passenger Trip Length (miles)
    
    
    293
    
    
    
    300
    
    
    
    292
    
    
    
    290Number of Flights
    
    
    15,097
    
    
    
    13,846
    
    
    
    29,759
    
    
    
    27,344Into-plane Fuel Cost per Gallon
    
    $
    1.81
    
    
    $
    1.27
    
    
    $
    1.72
    
    
    $
    1.24Full-time Equivalent Employees at End of Period
    
    
    962
    
    
    
    723
    
    
    
    962
    
    
    
    723Aircraft in Service at End of Period
    
    
    22
    
    
    
    22
    
    
    
    22
    
    
    
    22Midwest Air GroupRevenue Passenger Miles (000s)
    
    
    848,635
    
    
    
    646,862
    
    
    
    1,604,339
    
    
    
    1,272,974Scheduled Service Available Seat Miles (000s)
    
    
    1,149,674
    
    
    
    966,255
    
    
    
    2,239,072
    
    
    
    1,969,341Total Available Seat Miles (000s)
    
    
    1,161,391
    
    
    
    997,220
    
    
    
    2,272,688
    
    
    
    2,049,842Load Factor (%)
    
    
    73.8
    %
    
    
    66.9
    %
    
    
    71.7
    %
    
    
    64.6
    %Revenue Yield
    
    $
    0.1370
    
    
    $
    0.1427
    
    
    $
    0.1326
    
    
    $
    0.1385Revenue per Scheduled Service ASM (1)
    
    $
    0.1061
    
    
    $
    0.0995
    
    
    $
    0.0998
    
    
    $
    0.0933Total Cost per Total ASM
    
    $
    0.1203
    
    
    $
    0.1101
    
    
    $
    0.1178
    
    
    $
    0.1080Total Cost per Total ASM (ex-fuel cost) (2)
    
    $
    0.0854
    
    
    $
    0.0855
    
    
    $
    0.0844
    
    
    $
    0.0840Number of Flights
    
    
    26,446
    
    
    
    23,040
    
    
    
    51,215
    
    
    
    46,045Into-plane Fuel Cost per Gallon
    
    $
    1.74
    
    
    $
    1.24
    
    
    $
    1.67
    
    
    $
    1.21Full-time Equivalent Employees at End of Period
    
    
    2,775
    
    
    
    2,731
    
    
    
    2,775
    
    
    
    2,731Aircraft in Service at End of Period
    
    
    54
    
    
    
    50
    
    
    
    54
    
    
    
    50
 
 (1)
    
    Passenger, cargo and other transport-related revenue divided by scheduled service ASMs.(2)
    
    Non-GAAP measurement. See non-GAAP disclosures on page 16.   14




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##### Table of Contents



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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Per Total
    
    
    % of
    
    
    Per Total
    
    
    % of
    
    
    Per Total
    
    
    % of
    
    
    Per Total
    
    
    % ofASM
    
    
    Revenue
    
    
    ASM
    
    
    Revenue
    
    
    ASM
    
    
    Revenue
    
    
    ASM
    
    
    RevenueOperating Revenues:Passenger service
    
    $
    0.100
    
    
    
    88.3
    %
    
    $
    0.093
    
    
    
    86.4
    %
    
    $
    0.094
    
    
    
    87.3
    %
    
    $
    0.086
    
    
    
    84.7
    %Cargo
    
    
    0.001
    
    
    
    1.1
    %
    
    
    0.001
    
    
    
    1.1
    %
    
    
    0.001
    
    
    
    1.3
    %
    
    
    0.001
    
    
    
    1.1
    %Other
    
    
    0.012
    
    
    
    10.5
    %
    
    
    0.013
    
    
    
    12.5
    %
    
    
    0.012
    
    
    
    11.4
    %
    
    
    0.015
    
    
    
    14.2
    %Total Operating Revenues
    
    $
    0.113
    
    
    
    100.0
    %
    
    $
    0.107
    
    
    
    100.0
    %
    
    $
    0.107
    
    
    
    100.0
    %
    
    $
    0.102
    
    
    
    100.0
    %Operating Expenses:Salaries, wages and benefits
    
    $
    0.031
    
    
    
    27.7
    %
    
    $
    0.035
    
    
    
    32.8
    %
    
    $
    0.032
    
    
    
    30.0
    %
    
    $
    0.034
    
    
    
    33.7
    %Aircraft fuel and oil
    
    
    0.035
    
    
    
    30.8
    %
    
    
    0.025
    
    
    
    23.0
    %
    
    
    0.033
    
    
    
    31.1
    %
    
    
    0.024
    
    
    
    23.6
    %Commissions
    
    
    0.003
    
    
    
    2.6
    %
    
    
    0.003
    
    
    
    2.5
    %
    
    
    0.003
    
    
    
    2.6
    %
    
    
    0.003
    
    
    
    2.4
    %Dining services
    
    
    0.003
    
    
    
    2.3
    %
    
    
    0.002
    
    
    
    1.7
    %
    
    
    0.002
    
    
    
    2.0
    %
    
    
    0.002
    
    
    
    1.8
    %Station rental, landing, other fees
    
    
    0.009
    
    
    
    7.9
    %
    
    
    0.010
    
    
    
    9.0
    %
    
    
    0.010
    
    
    
    8.9
    %
    
    
    0.010
    
    
    
    9.9
    %Aircraft maint., materials and repairs
    
    
    0.012
    
    
    
    10.2
    %
    
    
    0.010
    
    
    
    9.4
    %
    
    
    0.011
    
    
    
    10.1
    %
    
    
    0.009
    
    
    
    9.0
    %Depreciation and amortization
    
    
    0.004
    
    
    
    3.1
    %
    
    
    0.004
    
    
    
    4.1
    %
    
    
    0.004
    
    
    
    3.4
    %
    
    
    0.004
    
    
    
    4.3
    %Aircraft rentals
    
    
    0.011
    
    
    
    9.9
    %
    
    
    0.009
    
    
    
    8.8
    %
    
    
    0.011
    
    
    
    10.1
    %
    
    
    0.009
    
    
    
    9.3
    %Other
    
    
    0.013
    
    
    
    11.6
    %
    
    
    0.012
    
    
    
    11.4
    %
    
    
    0.012
    
    
    
    11.6
    %
    
    
    0.013
    
    
    
    12.3
    %Total Operating Expenses
    
    $
    0.120
    
    
    
    106.2
    %
    
    $
    0.110
    
    
    
    102.7
    %
    
    $
    0.118
    
    
    
    109.9
    %
    
    $
    0.108
    
    
    
    106.3
    %Total ASMs (000s)
    
    
    1,161,391
    
    
    
    
    
    
    
    997,221
    
    
    
    
    
    
    
    2,272,688
    
    
    
    
    
    
    
    2,049,842
  15




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##### Table of Contents



Non-GAAP Disclosures
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Midwest Airlines OperationsTotal GAAP operating expenses ($000)
    
    $
    118,137
    
    
    $
    91,681
    
    
    $
    223,670
    
    
    $
    184,495ASMs (000)
    
    
    1,065,745
    
    
    
    908,496
    
    
    
    2,082,699
    
    
    
    1,875,815CASM
    
    $
    0.1108
    
    
    $
    0.1009
    
    
    $
    0.1074
    
    
    $
    0.0984Total GAAP operating expenses ($000)
    
    $
    118,137
    
    
    $
    91,681
    
    
    $
    223,670
    
    
    $
    184,495Less: aircraft fuel ($000)
    
    $
    34,839
    
    
    $
    20,787
    
    
    $
    64,849
    
    
    $
    41,866Operating expenses excluding fuel ($000)
    
    $
    83,298
    
    
    $
    70,894
    
    
    $
    158,821
    
    
    $
    142,629ASMs (000)
    
    
    1,065,745
    
    
    
    908,496
    
    
    
    2,082,699
    
    
    
    1,875,815CASM excluding fuel
    
    $
    0.0782
    
    
    $
    0.0780
    
    
    $
    0.0763
    
    
    $
    0.0760Midwest Connect OperationsTotal GAAP operating expenses ($000)
    
    $
    24,009
    
    
    $
    19,449
    
    
    $
    47,618
    
    
    $
    39,237ASMs (000)
    
    
    95,646
    
    
    
    88,725
    
    
    
    189,989
    
    
    
    174,027CASM
    
    $
    0.2510
    
    
    $
    0.2192
    
    
    $
    0.2506
    
    
    $
    0.2255Total GAAP operating expenses ($000)
    
    $
    24,009
    
    
    $
    19,449
    
    
    $
    47,618
    
    
    $
    39,237Less: aircraft fuel ($000)
    
    $
    5,715
    
    
    $
    3,760
    
    
    $
    10,910
    
    
    $
    7,228Operating expenses excluding fuel ($000)
    
    $
    18,293
    
    
    $
    15,689
    
    
    $
    36,708
    
    
    $
    32,009ASMs (000)
    
    
    95,646
    
    
    
    88,725
    
    
    
    189,989
    
    
    
    174,027CASM excluding fuel
    
    $
    0.1913
    
    
    $
    0.1768
    
    
    $
    0.1932
    
    
    $
    0.1839Midwest Air GroupTotal GAAP operating expenses ($000)
    
    $
    139,747
    
    
    $
    109,794
    
    
    $
    267,682
    
    
    $
    221,318ASMs (000)
    
    
    1,161,391
    
    
    
    997,220
    
    
    
    2,272,687
    
    
    
    2,049,842CASM
    
    $
    0.1203
    
    
    $
    0.1101
    
    
    $
    0.1178
    
    
    $
    0.1080Total GAAP operating expenses ($000)
    
    $
    139,747
    
    
    $
    109,794
    
    
    $
    267,682
    
    
    $
    221,318Less: aircraft fuel ($000)
    
    $
    40,555
    
    
    $
    24,547
    
    
    $
    75,760
    
    
    $
    49,094Operating expenses excluding fuel ($000)
    
    $
    99,192
    
    
    $
    85,247
    
    
    $
    191,922
    
    
    $
    172,224ASMs (000)
    
    
    1,161,391
    
    
    
    997,220
    
    
    
    2,272,687
    
    
    
    2,049,842CASM excluding fuel
    
    $
    0.0854
    
    
    $
    0.0855
    
    
    $
    0.0844
    
    
    $
    0.0840
  16




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##### Table of Contents



Three Months Ended June 30, 2005Compared With Three Months Ended June 30, 2004
 Operating Revenues
    Operating Expenses
  17




---



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18




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##### Table of Contents



Provision for Income Taxes
 Net Loss
 Six Months Ended June 30, 2005Compared With Six Months Ended June 30, 2004
 Operating Revenues
   19




---



##### Table of Contents



Operating Expenses
      20




---



##### Table of Contents



Other Income (Expense)
 Credit for Income Taxes
 Net Loss
 21




---



##### Table of Contents



Liquidity and Capital Resources
    Operating Activities
   Investing Activities
 22




---



##### Table of Contents



Financing Activities
 Annual Report on Form 10-K
  Annual Report on
Form 10-K
 Annual
Report on Form 10-K
 23




---



##### Table of Contents



2005 and Beyond
   
    
    The Company anticipates total capital spending to be approximately $10.0 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.
 
    
    The Companys goal is to be cash flow neutral in 2005 through increases in revenue and to
realize 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 $12 million in
annualized savings. The Company realized some of these savings in the first and second
quarters of 2005, but expects to realize most of these savings in the remaining two quarters
of 2005.
 
    
    The Company estimates net interest expense of $0.1 million in 2005.
 
    
    The Company expects non-cash expenses arising primarily from depreciation to contribute
approximately $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.
 24




---



##### Table of Contents




    
    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 onForm 10-K for
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
 Annual Report on Form 10-K
 
    
    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;
 
    
    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
 25




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##### Table of Contents




    
    A resolution of matters relating to a Wisconsin ad valorem property tax exemption.
  Pending Developments
 Property Tax Exemption
 Change to New York Stock Exchange Listing Standards
   26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Annual Report on Form 10-K
   
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in internal controls
 27




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 4. Submission of Matters to a Vote of Security Holders
  Authority Granted
    
    
    Authority WithheldTimothy E. Hoeksema
    
    
    15,296,636
    
    
    
    1,722,463Ulice Payne, Jr.
    
    
    15,294,918
    
    
    
    1,724,181David H. Treitel
    
    
    15,316,980
    
    
    
    1,702,119
 
   28




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##### Table of Contents



Item 6. Exhibits
 (10.1)
    
    Midwest Air Group, Inc. 2005 Equity Incentive Plan (incorporated by
reference to Appendix A to the notice of Annual Meeting and Proxy
statement of Midwest Air Group for the Annual Meeting of the
shareholders on April 20, 2005 (File No. 1-13934)).(10.2)
    
    Midwest Air Group, Inc. 2005 Non-Employee Director Stock Plan
(incorporated by reference to Appendix B to the notice of Annual
Meeting and Proxy statement of Midwest Air Group for the Annual
Meeting of the shareholders on April 20, 2005 (File No. 1-13934)).(10.3)
    
    2005 Director Compensation Summary (incorporated by reference to
Exhibit 99.1 to the Current Report on Form 8-K filed April 26, 2005
of Midwest Air Group (File No. 1-13934)).(10.4)
    
    Form of Restricted Stock Grant Letter (incorporated by reference to
Exhibit 99.2 to the Current Report on Form 8-K filed April 26, 2005
of Midwest Air Group (File No. 1-13934)).(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




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##### Table of Contents



Midwest Air Group, Inc.Date: July 28, 2005
    By
    /s/ Timothy E. HoeksemaTimothy E. HoeksemaChairman of the Board, President and
Chief Executive Officer Date: July 28, 2005
    By
    /s/ Curtis E. SawyerCurtis E. SawyerSenior Vice President and
Chief Financial Officer 30




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##### Table of Contents



EXHIBIT INDEX
MIDWEST AIR GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
 FOR THE QUARTER ENDED JUNE 30, 2005
 Exhibit No.
    
    Description(10.1)
    
    Midwest Air Group, Inc. 2005 Equity Incentive Plan (incorporated by
reference to Appendix A to the notice of Annual Meeting and Proxy
statement of Midwest Air Group for the Annual Meeting of the
shareholders on April 20, 2005 (File No. 1-13934)).(10.2)
    
    Midwest Air Group, Inc. 2005 Non-Employee Director Stock Plan
(incorporated by reference to Appendix B to the notice of Annual
Meeting and Proxy statement of Midwest Air Group for the Annual
Meeting of the shareholders on April 20, 2005 (File No. 1-13934)).(10.3)
    
    2005 Director Compensation Summary (incorporated by reference to
Exhibit 99.1 to the Current Report on Form 8-K filed April 26, 2005
of Midwest Air Group (File No. 1-13934)).(10.4)
    
    Form of Restricted Stock Grant Letter (incorporated by reference to
Exhibit 99.2 to the Current Report on Form 8-K filed April 26, 2005
of Midwest Air Group (File No. 1-13934)).(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.
 31