# FORM 10-Q

# UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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, 2004                                           
|      | OR                                                                                      
|[   ] | 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
incorporation or organization)                                   |  | (I.R.S. Employer Identification No.)
|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

Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest practicable
date.

As of April 30, 2004, there were
17,420,445 shares of Common Stock, $.01 par value, of the registrant outstanding.

---

# MIDWEST AIR GROUP,
INC.FORM 10-QFor the period ended
March 31, 2004

# 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 | 11  
|Item 3.                     | Quantitative and Qualitative Disclosures about Market Risk                            | 22  
|Item 4.                     | Controls and Procedures                                                               | 22  
|PART II - OTHER INFORMATION
|Item 6.                     | Exhibits and Reports on Form 8-K                                                      | 23  
|SIGNATURES                  |                                                                                       | 24  

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 EndedMarch 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)

|                                                                 | March 31,2004 |  | December 31,2003 |        
|---------------------------------------------------------------- | ------------- |  | ---------------- | -------
|ASSETS                                                           |               |  |                  |        
|Current assets:                                                  |               |  |                  |        
|Cash and cash equivalents                                        |               |  | $                | 101,335
|Accounts receivable, net                                         |               |  |                  | 5,519  
|Inventories                                                      |               |  |                  | 7,944  
|Prepaid expenses                                                 |               |  |                  | 9,580  
|Restricted cash                                                  |               |  |                  | 27,478 
|Deferred income taxes                                            |               |  |                  | 8,372  
|                                                                 |               |  |                  |        
|Total current assets                                             |               |  |                  | 160,228
|                                                                 |               |  |                  |        
|Property and equipment, net                                      |               |  |                  | 188,995
|Aircraft purchase deposits and pre-delivery progress payments    |               |  |                  | 27,453 
|Other assets, net                                                |               |  |                  | 16,301 
|                                                                 |               |  |                  |        
|Total assets                                                     |               |  | $                | 392,977
|                                                                 |               |  |                  |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                             |               | 
|Current liabilities:                                             |               | 
|Accounts payable                                                 |               |  | $                | 5,697  
|Income taxes payable                                             |               |  |                  | 5,621  
|Current maturities of long-term debt                             |               |  |                  | 2,325  
|Air traffic liability                                            |               |  |                  | 44,596 
|Unearned revenue                                                 |               |  |                  | 14,540 
|Accrued liabilities                                              |               |  |                  | 39,912 
|                                                                 |               |  |                  |        
|Total current liabilities                                        |               |  |                  | 112,691
|                                                                 |               |  |                  |        
|Long-term debt                                                   |               |  |                  | 53,092 
|Long-term debt on pre-delivery progress payments                 |               |  |                  | 18,730 
|Deferred income taxes                                            |               |  |                  | 10,249 
|Noncurrent scheduled maintenance expense                         |               |  |                  | 2,259  
|Accrued pension and other postretirement benefits                |               |  |                  | 16,408 
|Deferred frequent flyer partner revenue                          |               |  |                  | 6,836  
|Deferred revenue                                                 |               |  |                  | 45,587 
|Other noncurrent liabilities                                     |               |  |                  | 9,476  
|                                                                 |               |  |                  |        
|Total liabilities                                                |               |  |                  | 275,328
|                                                                 |               |  |                  |        
|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,      |               | 
|18,115,185 and 18,108,959 shares issued at March 31, 2004        |               | 
|and December 31, 2003, respectively                              |               |  |                  | 181    
|Additional paid-in capital                                       |               |  |                  | 45,290 
|Treasury stock, at cost                                          |               |  |                  | (15,579
|Retained earnings                                                |               |  |                  | 87,901 
|Cumulative other comprehensive loss                              |               |  |                  | (144   
|                                                                 |               |  |                  |        
|Total shareholders' equity                                       |               |  |                  | 117,649
|                                                                 |               |  |                  |        
|Total liabilities and shareholders' equity                       |               |  | $                | 392,977
|                                                                 |               |  |                  |        

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 EndedMarch 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                                              |                             | 
|Restricted cash                                               |                             | 
|Accounts payable                                              |                             | 
|Deferred frequent flyer partner revenue                       |                             | 
|Accrued liabilities                                           |                             | 
|Unearned revenue                                              |                             | 
|Accrued pension                                               |                             | 
|Air traffic liability                                         |                             | 
|                                                              |                             | 
|Net cash provided by (used in) operating activities           |                             | 
|                                                              |                             | 
|Investing activities:                                         |                             | 
|Capital expenditures                                          |                             | 
|Aircraft purchase deposits and pre-delivery progress payments |                             | 
|Aircraft purchase deposits returned                           |                             | 
|Proceeds from sale of property and equipment                  |                             | 
|Other, net                                                    |                             | 
|                                                              |                             | 
|Net cash provided by (used in) investing activities           |                             | 
|                                                              |                             | 
|Financing activities:                                         |                             | 
|Funding of pre-delivery progress payments                     |                             | 
|Return of pre-delivery progress payments                      |                             | 
|Payment on note payable                                       |                             | 
|Other, net                                                    |                             | 
|                                                              |                             | 
|Net cash (used in) provided by financing activities           |                             | 
|                                                              |                             | 
|Net increase (decrease) in cash and cash equivalents          |                             | 
|Cash and cash equivalents, beginning of period                |                             | 
|                                                              |                             | 
|Cash and cash equivalents, end of period                      |                             | 
|                                                              |                             | 
|Supplemental non-cash activities:                             |                             | 
|Non-cash incentives                                           |                             | 
|Supplemental cash flow information:                           |                             | 
|Cash paid (received) for:                                     |                             | 
|Income taxes                                                  |                             | 
|Interest                                                      |                             | 

See notes to unaudited condensed
consolidated financial statements.

4

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# Midwest Air Group,
Inc.Notes to 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, 2004 and 2003 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, 2003. The results of operations for the three-month period
ended March 31, 2004 are not necessarily indicative of the results that may be expected
for the entire fiscal year ending December 31, 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is party to litigation incidental to its business. Management believes
that no existing litigation is likely to have a 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 (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 on Form 10-K for the fiscal year ended December 31, 2003.
Financial information for the three-month periods ended March 31, 2004 and 2003, for the
two segments, Midwest Airlines and Skyway Airlines, follows (in thousands).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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# 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      

# Three Months Ended
March 31, 2003

|                              | Midwest | Skyway | Elimination | Consolidated
|----------------------------- | ------- | ------ | ----------- | ------------
|Operating revenues            |         |        | $           | 79,626      
|Loss before income tax credit |         |        |             | (12,246     
|Income tax credit             |         |        |             | (4,286      
|Net loss                      |         |        |             | (7,960      

6

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

| | The
Company periodically utilizes option contracts to mitigate exposure to the fluctuation in
aircraft fuel prices in accordance with the Companys financial risk management
policy. The options establish ceiling prices for anticipated jet fuel purchases and serve
as hedges of those purchases. The Company does not hold or issue derivative instruments
for trading purposes. At March 31, 2003, the Company had options in place to hedge
approximately 15% of its projected fuel purchases in the second quarter of 2003. These
contracts expired at various dates through June 30, 2003. At March 31, 2003, the options
were valued at $0.4 million and were included in prepaid expenses in the condensed
consolidated balance sheet. The value of an option is determined using an estimate of
fair market value provided by major financial institutions. At March 31, 2004, the
Company had no options in place for current or future periods.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company accounts for its fuel hedge derivative instruments as cash flow hedges.
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
to fuel expense. The Company reclassified $1.0 million to the income statement in first
quarter 2003 as an offset to fuel expense when the first quarter 2003 hedges expired.
Other comprehensive income related to fuel hedges was $0 and $0.1 million for the
quarters ended March 31, 2004 and 2003, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
The Company had one additional leased DC-9 aircraft that was removed from service as of
the end of April 2004. The Company recorded a non-cash charge of $0.4 million (pre-tax)
in April 2004 related to the retirement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Midwest
Airlines has received credit memos from certain suppliers associated with the delivery of
each Boeing 717 aircraft to be used for the acquisition of aircraft spare parts and
maintenance tooling, employee training, flight simulator rental, aircraft lease payments
and engine maintenance agreements. As of March 31, 2004, the amount of unused credit
memos totaled $5.8 million and is recorded as other assets in the condensed consolidated
balance sheets. Midwest Airlines will receive additional credit memos on the delivery of
each subsequent Boeing 717 aircraft, and will continue to use the credits as needed to
pay for applicable services. The benefit of these credit memos is being recognized over
the term of the related leases.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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

| | At
March 31, 2004, the Company had two stock-based employee compensation plans and one stock
plan for outside directors, which are described more fully in Note 7 of the Notes to the
Consolidated Financial Statements of the Companys Annual Report on Form 10-K for
the year ended December 31, 2003. The Company has adopted the disclosure requirements of
SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123)
as amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure. The Company has elected to continue to follow the provisions of
Accounting Principles Board No. 25, Accounting for Stock Issued to Employeesand
its related interpretations. Accordingly, no compensation cost has been reflected for the
1995 Stock Option Plan in the 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2004 and 2003 would have been reduced to the pro
forma amounts indicated below (in thousands, except per share amounts):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

8

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| | The
following table is a reconciliation of the weighted average shares outstanding for the
three-month periods ended March 31, 2004 and 2003 (in thousands):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Three Months EndedMarch 31, | 
|------------------------------ | --------------------------- | 
|
|Weighted average shares        |                             | 
|outstanding                    |                             | 
|Effect of dilutive securities: |                             | 
|Stock options (1)              |                             | 
|Shares issuable under the 1995 |                             | 
|Stock Plan for Outside         |                             | 
|Directors (2)                  |                             | 
|Warrants (3)                   |                             | 
|Convertible debt (3)           |                             | 
|                               |                             | 
|Weighted average shares        |                             | 
|outstanding assuming dilution  |                             | 
|                               |                             | 

|(1) | Stock
options outstanding under the 1995 Stock Option Plan and 2003 All-Employee
               Stock Option Plan of 229 and 0, respectively, were excluded from the 2004
and                2003 calculation as their effect was anti-dilutive.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Shares
issuable under the 1995 Stock Plan for Outside Directors of 35 and 18,
               respectively, were excluded from the 2004 and 2003 calculation as their
effect                was anti-dilutive.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Shares
issuable of 0 and 0 under warrants issued by the Company and convertible
               senior secured notes issued by the Company were not included in the above
               calculation as their effect was anti-dilutive.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the final restructuring agreements with the 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, 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | 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, 2004 and 2003, comprehensive
loss was $(6.8) million and $(12.0) million, respectively. The difference between the net
loss and comprehensive loss for the three months ended March 31, 2004 and 2003 is due to
the required accounting for the Companys changes in minimum pension liabilities and
derivative financial instruments, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | 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 2004, the Company and the
credit card processor agreed to an extension of the agreement until March 31, 2005. This
extension includes a provision to lower the cash holdback amount from 100% to 80% of
advance sales provided certain financial covenants are met. These covenants were
achieved by the Company in March and April 2004. The Company also has agreements with
American Express, Diners Club and Discover. As of March 31, 2004, American Express had
retained cash related to credit card processing totaling $1.0 million. If current
industry conditions persist, other credit card processors may require holdbacks as well.
The aggregate amount of the risk exposure of the processors (other than amounts under
holdback) as of April 2004 was approximately $11.2 million.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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|9. | Retirement
and Benefit Plans
|-- | ----------------------------

| | The
net periodic benefit cost of benefit pension plans for the three-month periods ending
March 31, 2004 and 2003, respectively, includes the following (in thousands):
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | Pension Benefits |  | Other Benefits |    
|------------------------------- | ---------------- |  | -------------- | ---
|
|Components of Net Periodic      |                  |  |                |    
|Benefit Cost                    |                  | 
|Service cost                    |                  |  | $              | 325
|Interest cost                   |                  |  |                | 301
|Expected return on assets       |                  |  |                | (90
|Amortization of:                |                  | 
|Prior service cost              |                  |  |                | 80 
|Actuarial loss                  |                  |  |                | 116
|                                |                  |  |                |    
|Total net periodic benefit cost |                  |  | $              | 732
|                                |                  |  |                |    

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

10

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

# Overview

# Results of Operations

The Companys first quarter 2004
operating loss was ($10.2) million, an improvement of $7.7 million from the first quarter
2003 operating loss of ($17.9) million. Net loss for the quarter was ($6.9) million, an
improvement of $4.9 million from the first quarter 2003 net loss of ($11.8) million. First
quarter 2004 net loss per share on a diluted basis was ($0.39), an improvement of $0.37
from first quarter 2003 net loss per share on a diluted basis of ($0.76), which includes
the effects of the November 2003 issuance of approximately 1.9 million shares in
conjunction with the Companys private placement of shares to accredited investors.
First quarter 2004 results include $1.2 million (pre-tax) in lease expense on two leased
DC-9 aircraft removed from service during first quarter 2004.

The Companys total revenue in
the first quarter 2004 increased $7.3 million, or 7.7%, compared to first quarter 2003.
Revenue for the first quarter 2004 was impacted favorably by increased charter service
revenue, and was influenced by the Companys new Saver Service, as well as continued
downward pressure on fares resulting from a difficult industry environment and a
challenging competitive situation in Milwaukee.

First quarter 2004 was the
Companys initial first-quarter period with the new Saver Service product. As
expected, Saver Service enabled Midwest Airlines to carry significantly increased numbers
of passengers to leisure-oriented destinations, particularly Florida and Phoenix. Saver
Service represented approximately half of the total scheduled service capacity of Midwest
Airlines during the first quarter, in part due to the Companys seasonal service,
which ended in April 2004, and had a significant impact on both unit revenues and unit
costs of the Company. As anticipated, unit revenues declined as the Company offered lower
fares to stimulate travel. The result was higher load factors and lower revenue yields in
these markets, but more revenue per flight segment than if these routes would have been
operated with Signature Service. Company unit costs declined as well, since Saver Service
added more seats on each corresponding flight segment. In total, Saver Service met the
Companys expectations in revenue generation, cost reduction and customer
satisfaction in the first quarter 2004.

Unit costs were also impacted by the
restructuring completed in 2003 and the transition to new Boeing 717 aircraft. The
Companys restructuring efforts resulted in unit cost reductions in most categories,
with the major impact on the labor, commissions, dining services and aircraft rental line
items. The Company removed from service all but two DC-9 aircraft by the end of the first
quarter 2004, and completed the retirement of the DC-9 fleet by the end of April 2004,
just 14 months after the transition was initiated. The impact of this transition on unit
costs was most evident in the fuel, maintenance materials and aircraft rentals line items.

Fuel prices were higher than
anticipated in first quarter 2004 and were the highest for any quarter in the
Companys history. Company fuel consumption totaled approximately 21 million gallons
in the quarter; at this rate, each penny change in fuel price resulted in approximately
$200,000 of additional cost in the quarter. The Companys business plan for 2004 was
based on an average fuel price of $0.90 per gallon; the average actual fuel price per
gallon for the first quarter 2004 was $1.18.

11

---

The Company continues to adjust to
changes in competition and industry pricing initiatives, particularly in the Milwaukee
market. Northwest Airlines recently announced plans to increase operations in Milwaukee,
but at the same time transition from large jet aircraft to regional jets on several
business routes. The Company has also experienced multiple pricing initiatives from other
airlines attempting to gain market share or stimulate traffic. The Company intends to
vigorously compete in the changing environment by offering clearly differentiated service
at competitive fares.

The first quarter of the
Companys fiscal year is historically the most challenging financially, as travel in
the Companys core business markets is seasonally low. The Company expects the second
quarter 2004 to be more encouraging and, barring any major unforeseen circumstances,
expects to report a modest profit for the second quarter.

There is further detailed discussion
of revenue and cost comparisons for the quarter in subsequent sections.

12

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# Operating Statistics

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

|                                                | Three Months EndedMarch 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.

13

---

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

|                                            | Three Months Ended 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.

14

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# Three Months Ended
March 31, 2004 Compared WithThree Months Ended
March 31, 2003

# Operating Revenues

Company operating revenues totaled
$101.3 million in first quarter 2004, a $7.3 million, or 7.7%, increase from first quarter
2003. Passenger revenues accounted for 82.8% of total revenues and increased $4.0 million,
or 5.0%, from first quarter 2003 to $83.9 million. The increase is attributable to a 21.6%
increase in passenger volume, as measured by scheduled service revenue passenger miles, as
well as a 3.2-point increase in load factor. The increase was partially offset by a 13.7%
decrease in revenue yield. The decrease in revenue yield was due primarily to reduced
business fares, the introduction of Saver Service, heavy industrywide fare discounting
implemented to stimulate travel demand, and increased competition in many markets,
including Midwest Airlines main base of operations in Milwaukee.

Midwest Airlines passenger revenue
increased $3.2 million, or 5.0%, from 2003 to $67.8 million. The increase was primarily
the result of a 24.6% increase in passenger volume, as measured by scheduled service
revenue passenger miles. The increase in traffic was partially offset by a decrease in
revenue yield of 15.7% due to the factors described above. Load factor increased from
61.1% in 2003 to 63.6% in 2004. Total capacity, as measured by scheduled service ASMs,
increased 19.5%, with 12% due to the introduction of Saver Service and 7.5% due to other
schedule changes.

Midwest Connect passenger revenue
increased $0.8 million, or 5.1%, from first quarter 2003 to $16.1 million. A 14.9%
increase in revenue yield, caused primarily by schedule changes that resulted in a transition to shorter flights with higher
yields, was the key factor in the increased revenue. The yield increase was partially
offset by an 8.6% decline in passenger volume, which was caused primarily by a 15.3%
reduction in capacity. Fewer passengers were carried despite a 3-point increase in load
factor.

Revenue from cargo, charter and other
services increased $3.3 million in first quarter 2004. Revenue from charter sales
accounted for the majority of the change, and increased 75% over first quarter 2003 as
more aircraft time was dedicated to charter service, two additional sports teams
contracted with the Company for charter services, and the Companys agreement with
The Mark Travel Corporation provided additional charter service for the Company.

# Operating Expenses

First quarter 2004 operating expenses
decreased $0.5 million, or 0.4%, from first quarter 2003. Lower costs in almost all
categories due to the Companys restructuring initiatives were offset by higher costs
in the other category  primarily due to higher advertising ($0.7
million), the accrual of Wisconsin property taxes, as discussed further in Pending
Developments ($0.6 million), charter service costs ($0.6 million), frequent flyer-related
costs ($0.4 million), and facilities rent ($0.4 million) due to the sale/leaseback of the
Companys headquarters facility in November 2003  and increased aircraft lease
expense, due to the recognition of $1.2 million (pre-tax) of lease expense on two leased
DC-9 aircraft removed from service during first quarter 2004, as well as the addition of
13 leased Boeing 717 aircraft to the Midwest Airlines fleet year over year. Cost per total
ASM (unit costs) at Midwest Airlines decreased 18.0% to 9.6¢ in first quarter 2004;
Midwest Connects cost per total ASM increased 8.3% to 23.2¢.

15

---

Salaries, wages and benefits
decreased $3.9 million, or 10.1%, from first quarter 2003 to $35.1 million. The labor cost
decrease is primarily due to a decrease in headcount of 203 full-time equivalents quarter
over quarter ($4.1 million), as well as lower labor rates ($0.7 million), partially offset
by increased costs for fringe benefits ($0.8 million). On a cost per total ASM basis,
labor costs decreased 24.4% to 3.3¢ in 2004.

Aircraft fuel and oil and associated
taxes were essentially unchanged from first quarter 2003 at $24.5 million. Into-plane fuel
prices increased 5.6% in first quarter 2004, averaging $1.18 per gallon versus $1.11 per
gallon in first quarter 2003, and resulted in a $1.3 million (pre-tax) unfavorable price
impact (calculated by applying 2003 prices to actual gallons consumed in 2004 and comparing the result to actual 2004 expense).
Fuel consumption decreases resulted in a $1.5 million (pre-tax) favorable impact
in the quarter (calculated by applying 2004 prices to the actual reduction in gallons consumed in 2004 relative to 2003),
primarily as a result of the transition of the Midwest Airlines fleet to Boeing
717s, which are more fuel-efficient than the DC-9s.

Commissions for travel agents and
commissions related to credit card transactions decreased $0.9 million, or 27.8%, from
first quarter 2003 to $2.4 million. The decrease was due primarily to the effects of the
Companys decision, in March 2003, to discontinue payment of standard travel agent
commissions. Commissions as a percentage of passenger revenue decreased from 4.2% in first
quarter 2003 to 2.9% in first quarter 2004.

Dining services costs decreased $1.3
million, or 39.8%, from first quarter 2003 to $2.0 million. The decrease was due to the
elimination of complimentary onboard meal service in March 2003. Total dining services
costs per Midwest Airlines passenger decreased from $6.78 in first quarter 2003 to $3.42
in first quarter 2004.

Depreciation and amortization
decreased $0.8 million, or 15.6%, from first quarter 2003 to $4.5 million. On a cost per
total ASM basis, these costs decreased 29.1%. Depreciation was lower as the DC-9 fleet was
essentially replaced quarter over quarter with leased Boeing 717 aircraft.

Aircraft rental costs increased $3.5
million, or 53.9%, from first quarter 2003 to $9.9 million. These costs increased due to
the recognition of $1.2 million (pre-tax) of lease expense on two leased DC-9 aircraft
removed from service during first quarter 2004, as well as the addition of 13 leased
Boeing 717 aircraft to the Midwest Airlines fleet quarter over quarter ($6.4 million),
partially offset by lower lease rates on remaining aircraft in the Company fleet as a
result of the restructuring ($4.0 million). On a cost per total ASM basis, these costs
increased 29.3%.

Other operating expenses increased
$2.7 million, or 25.5%, from first quarter 2003 to $13.5 million. Other operating expenses
consist primarily of advertising and promotion, insurance, property taxes, crew hotel
rooms, reservation fees, administration and other items. Cost increases were primarily due
to higher advertising ($0.7 million), the accrual of Wisconsin property taxes, as
discussed in Pending Developments ($0.6 million), charter service costs ($0.6 million),
frequent flyer-related costs ($0.4 million), and facilities rent ($0.4 million) due to the
sale/leaseback of the Companys headquarters facility in November 2003. On a cost per
total ASM basis, other operating expenses increased 5.5%.

16

---

# Credit for Income Taxes

Income tax credit for first quarter
2004 was ($3.9) million, a $2.4 million decrease from the 2003 credit of ($6.3) million.
The effective tax rates for the first quarters of 2004 and 2003 were 36.5% and 35.0%,
respectively.

# Net Loss

Net loss for first quarter 2004 was
($6.9) million, an improvement of $4.9 million from the first quarter 2003 net loss of
($11.8) million.

# Liquidity and Capital
Resources

The Companys unrestricted cash and
cash equivalents totaled $101.3 million at March 31, 2004, compared with $88.3 million at
December 31, 2003. At March 31, 2004, the restricted cash balance was $27.5 million,
compared with $26.1 million on December 31, 2003. The change in restricted cash is
primarily attributable to increased bookings, partially offset by a decrease in the credit
card holdback amount that is discussed in more detail in Note 8 to the condensed
consolidated financial statements.

The unrestricted cash balance at
March 31, 2004 reflects the favorable impact of credits related to the acquisition of
Boeing 717 aircraft and a reduction in the percent of cash held back (from 100% to 80% as
discussed in Note 8 to the condensed consolidated financial statements) by the processor
of Visa/MasterCard transactions.

As of March 31, 2004, the Company had
a working capital surplus of $47.5 million compared with a $39.3 million surplus in
December 31, 2003. The change in working capital as of March 31, 2004 is primarily related
to an increase in unrestricted cash as discussed above, which offset increases in the
liability for airline tickets purchased but not yet used and various other accrued
liabilities.

Operating ActivitiesNet cash provided by operations for
the three months ended March 31, 2004 totaled $8.8 million. Cash provided by operations
for the three months ended March 31, 2004 primarily 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 lease payments and engine maintenance agreements; therefore,
the majority of these expenses for the quarter involved no cash outlay. As of March 31,
2004, the amount of unused credit memos totaled $5.8 million and is recorded as other
assets in the condensed consolidated balance sheet. The credits available for aircraft
lease payments were used up during the first quarter of 2004; going forward, 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 benefit of these credit memos is being recognized over the term of the
related leases. In addition to the credits, net cash provided from operations increased
due to the reduction in the cash holdback on advance sales by the Mastercard/Visa processor,
resulting in reduced restricted cash.

17

---

Investing ActivitiesNet cash provided by investing
activities for the three months ended March 31, 2004 totaled $11.4 million compared with
$3.0 million provided by investing activities for the year ended December 31, 2003. The
change in net cash provided from investing activities during the quarter primarily relates
to purchase deposits that were returned for the three Boeing 717 deliveries in the first
quarter 2004. Capital spending totaled $1.6 million for the quarter; however, credits were
used for a portion of such spending, with cash outlay of $0.5 million for the quarter
ended March 31, 2004. Capital expenditures consisted primarily of costs associated with
the acquisition of additional spare parts for the Boeing 717 fleet.

Financing ActivitiesNet cash used in financing activities
during the first quarter 2004 was $7.1 million, compared with $28.1 million net cash
provided by financing activities for the year ended 2003. The change in net cash used in
financing activities during the quarter primarily relates to the return of progress
payments associated with three Boeing 717 aircraft delivered during the first quarter
2004. The progress payments were originally provided to The Boeing Company
(Boeing) by Kreditanstalt fur Wiederaufbau Bank (KfW) on behalf of
Rolls-Royce Deutschland Ltd. & Co. KG (Rolls-Royce).

In second quarter 2002, Midwest
Airlines entered into a loan agreement to fund pre-delivery progress payments to Boeing
for the Boeing 717 aircraft. Midwest Airlines also entered into a loan agreement with KfW
with the assistance of Rolls-Royce. Rolls-Royce agreed to guarantee this loan agreement on
behalf of Midwest Airlines. This agreement is discussed in more detail in Note 5 to the
Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the
year ended December 31, 2003. As of March 31, 2004, the Company owed $18.1 million under
the loan agreement. The Company expects that the debt associated with this financing
transaction will continue to trend downward, as the firm aircraft delivery schedule is
more than half completed.

With the loan agreement with KfW and
the Boeing Capital Corporation (BCC) commitment to finance the Boeing 717
aircraft, the Company believes it has requisite financing for 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
the Company will be unable to meet the conditions.

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

18

---

As discussed in Note 5 to the
Consolidated Financial Statements contained in the Companys Annual Report on Form
10-K for the year ended December 31, 2003, the Company issued promissory notes to the
lessors and lenders as part of the restructuring agreements. The aggregate principal
amount of these notes is $7.5 million. Principal and interest on these moratorium notes
are payable, in arrears, in 36 monthly installments commencing in July 2004.

As a result of the restructuring of
lease and debt agreements described in the Recent Developments section of the
Companys Annual Report on Form 10-K for the year ended December 31, 2003, the
Company has significantly lowered its obligations compared with the obligations under the
previous lease and debt agreements. Included in the restructured agreements are clauses
that would make the Companys obligations, under certain default situations, increase
to the amounts under the previous agreements. Such defaults include the Company filing for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. The amount of such contingent
obligation of the Company is approximately $15.5 million as of March 31, 2004; the term of
this contingent obligation of the Company is until July 2006.

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

| | Capital
spending is anticipated to be approximately $7.5 million for 2004 and is expected to be
$8-$10 million annually for the next few years, excluding aircraft acquisitions, which
the Company expects it will lease. Most of the spending is expected to be for spare parts
for the Boeing 717 program and continued maintenance support of the Midwest Airlines
MD-80 fleet. Some of the capital spending will be completed using supplier credits.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
interest expense is estimated at $2 million in 2004, with declining amounts in following
years.
|- | ---------------------------------------------------------------------------------------------------

| | Non-cash
expenses arising primarily from book depreciation will contribute $15-17 million to
annual cash flow.
|- | --------------------------------------------------------------------------------------------------------------

| | Defined
benefit pension plan contributions will amount to approximately $0.4 million in 2004.
|- | ---------------------------------------------------------------------------------------------

19

---

| | An
estimated $4.8 million income tax payment is anticipated in second quarter 2004. This
payment is associated with the settlement of prior years tax issues with the
Internal Revenue Service.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

# Pending Developments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

20

---

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.

Labor Relations In March and
April 2004, the International Brotherhood of Teamsters filed petitions with the National
Mediation Board to represent Midwest Airlines mechanics and related employees and
Midwest Airlines stock clerks, respectively. The Company expects to hear the results
of the respective elections in May and June 2004.

Regional Services Alliance In
April 2004, Skyway Airlines, Inc. announced it was in discussions with Delta Air Lines to
operate Delta Connections Fairchild 328JET fleet. Skyway has been evaluating
opportunities to operate aircraft for other airlines, which would constitute a shift in
its business model. To date, Skyway has provided connections for Midwest Airlines while
operating as Midwest Connect, as well as providing point-to-point service in select
Midwestern markets.

Property Tax Exemption On
November 7, 2003, a Dane County, Wisconsin, circuit court, in an action brought by
Northwest Airlines, Inc., declared invalid the Wisconsin statute that provides the hub
airline exemption from Wisconsin ad valorem property taxes. Savings to the Company from
the exemption have been approximately $2.0 million annually. However, the Company
estimates savings could be as high as $7.0 million annually by 2010. The Company is
working with the State of Wisconsin on an appeal or other action to reduce or eliminate
the potential effect of the decision. The Company believes there will be no retroactive
impact of the decision.

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

Competition On April 15, 2004,
Northwest Airlines announced additional nonstop service from Milwaukee. The announcement
related to new service to three destinations currently served by the Company and
additional frequencies on existing routes. The announcement also included a change in
equipment on several business routes from mainline jet service to regional jet service.
This change in service represents an approximate 8% net increase in Northwest Airlines
scheduled service capacity from Milwaukee.

Litigation Dornier Aviation
(North America) Inc. (DANA) Liquidating Trust filed litigation against Skyway
Airlines, 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 Dornier 328JET aircraft and through subsequent
resolution of Dorniers cancellation of the 428JET program. The Company contends the
credit memorandums were properly applied.

21

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# Item 3.   Quantitative and
Qualitative Disclosures about Market Risk

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

# Item 4.   Controls and
Procedures

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

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

22

---

# PART II  OTHER
INFORMATION

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

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

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

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

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

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

| | The
following reports on Form 8-K were filed during the quarter ended March 31, 2004:
| | -------------------------------------------------------------------------------------

|Date Filed       | Date of Report    | Item                                                                                                                            
|---------------- | ----------------- | --------------------------------------------------------------------------------------------------------------------------------
|January 6, 2004  | December 31, 2003 | The Company filed a news release
under Item 5 of Form 8-K reporting the change in name of the Company to Midwest Air Group, Inc.
|January 14, 2004 | January 13, 2004  | The Company filed a news release under Item 12 of Form 8-K reporting December performance data                                  
|January 28, 2004 | January 28, 2004  | The Company filed a news release under Item 12 of Form 8-K
reporting  fourth  quarter  and full year 2003  financial results    

23

---

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 10, 2004 | By:                    
|                    |                        
|Date:  May 10, 2004 | By:                    
|                    |                        

24

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

# FOR THE QUARTER ENDED
MARCH 31, 2004

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

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

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

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

25