EXHIBIT 13

      FIVE - YEAR FINANCIAL AND OPERATING DATA

MIDWEST EXPRESS HOLDINGS, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 


<TABLE>
<CAPTION>


                                                1998         1997           1996           1995           1994 
<S>                                           <C>          <C>            <C>            <C>            <C>
Statement of Income Data:
Total operating revenues...............        $388,874     $344,557       $304,746       $259,155       $203,592
Total operating expenses...............         333,219      306,087        270,387        227,781        192,328
Operating income.......................          55,655       38,470         34,359         31,374         11,264
Net income.............................          35,869       24,940         21,750         19,129          6,662
Net income per share-basic(1)..........            2.54         1.76           1.51           1.23           0.33
Net income per share-diluted(1)........            2.51         1.74           1.50           1.23           0.33

Balance Sheet Data:
Property and equipment, net ...........         160,583       89,156         70,903         55,919         57,626
Total assets...........................         220,477      166,748        129,135         92,833         95,436
Intercompany receivable(2).............               0            0              0             61         17,923
Long-term debt.........................           3,206        3,333              0              0              0
Shareholders' equity...................         $97,632      $63,398        $40,341        $21,264        $37,840

Selected Operating and Other Date(3):
Midwest Express Airlines:
  Revenue passenger miles (000s).......       1,623,659    1,409,528      1,239,966      1,150,338        972,809
  Available seat miles (000s)..........       2,498,543    2,198,179      1,954,151      1,794,924      1,600,437
  Passenger load factor (%)............           65.0%        64.1%          63.5%          64.1%          60.8%
  Revenue yield (cents per RPM)........            19.2         19.4           19.3           17.8           16.7
  Cost per total ASM (cents per mile)..            11.8         12.1           12.0           11.0           10.8
  Aircraft in service at year-end......              27           24             22             19             19
  Average aircraft utilization
    (hours per day)....................             9.1          9.3            9.2            9.0            8.6
  Number of FTE employees at year-end..           2,133        1,889          1,624          1,411          1,334

Astral Aviation, d/b/a Skyway Airlines(4):
  Revenue passenger miles (000s).......          77,547       69,277         71,165         66,415         43,219
  Available seat miles (000s)..........         160,772      158,912        160,488        156,113        103,759
  Passenger load factor (%)............           48.2%        43.6%          44.3%          42.5%          41.7%
  Revenue yield (cents per RPM)........            52.9         55.1           52.7           49.9           48.3
  Cost per total ASM (cents per mile)..            23.7         23.8           21.6           19.4           17.9
  Aircraft in service at year-end......              15           15             15             15             13
  Average aircraft utilization
    (hours per day)....................             8.1          7.7            7.8            7.9            7.9
  Number of FTE employees at year-end..             322          277            245            217            177


(1) Net income per share data is presented on a pro forma basis for 1995 and 1994 results.

(2)  Intercompany  receivable  reflects amounts  receivable from  Kimberly-Clark  in connection with the Company's  participation in
Kimberly-Clark's cash management program prior to the Company's initial public offering.

(3) Revenue passenger miles, available seat miles, passenger load factor and revenue yield are for scheduled service operations. The
other statistics include charter operations.

(4) Because  Astral began  service in February  1994,  results for 1994 reflect less than a full year of  operations.  Before Astral
commenced  operations,  Mesa Airlines,  Inc.  ("Mesa"),  pursuant to a codesharing  agreement with Midwest Express,  operated routes
similar to those that Astral now operates.  Because Mesa is not affiliated with the Company,  information relating to Mesa's results
of operations for these routes is not shown.

</TABLE>


                                       18
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

1998 Overview
1998 operating  income for Midwest  Express  Holdings,  Inc. (the "Company") was
$55.7  million,  an  increase  of $17.2  million  over 1997.  Net income in 1998
increased by $10.9 million to $35.9 million.  The favorable  change in financial
results  was  primarily  caused  by  continued  strong  demand  for air  travel,
successful  results of new operations,  lower fuel prices,  reduced travel agent
commissions and improved results from supplemental revenue programs.

The Company increased scheduled service capacity in 1998 by 12.8%, while traffic
increased 15.0%. This resulted in a load factor increase of 1.3 points.  Midwest
Express  Airlines,  Inc.  ("Midwest  Express") put three additional  aircraft in
service.   The   principal   new  routes   include   Milwaukee-Hartford   (May);
Milwaukee-Raleigh/Durham  (August);  Kansas  City-Raleigh/Durham  (October).  In
addition,  year-round service between  Milwaukee-Phoenix  (December) and weekend
service between Omaha-Orlando (December) was initiated. These routes contributed
favorably to 1998 profitability.

The  Company  benefited  significantly  from  lower fuel  prices in 1998,  which
averaged 22.3% less than 1997,  and resulted in a favorable  impact on operating
income of $12.2  million.  Also,  a reduced  travel agent  commission  structure
combined with a shift in ticket distribution  methods resulted in a $5.8 million
positive impact on operating income.

Improved results from supplemental revenue programs also favorably impacted 1998
financial  results.  Midwest Express' credit card program generated $2.7 million
additional  revenue in 1998 than 1997 and ticket  exchange fees  increased  $1.2
million.  Partially offsetting these improvements was a $2.0 million decrease in
charter revenue due to not having a dedicated  aircraft for charters much of the
year and the delay in the start of the NBA basketball season.

Operating  expenses  increased 8.9% primarily due to 12.8%  increased  capacity.
Significant  increases  occurred  in labor,  maintenance,  depreciation,  dining
services and aircraft rentals, which are explained in subsequent sections.

The following  table  provides  operating  revenues and expenses for the Company
expressed as cents per total  available  seat miles ("ASM"),  including  charter
operations,  and as a percentage of total operating  revenues for 1998, 1997 and
1996:

<TABLE>
<CAPTION>

                                          1998               1997                1996
                                       Per                Per                 Per
                                      Total              Total               Total
                                       ASM       %        ASM       %         ASM       %
                                    (in cents)         (in cents)          (in cents)
Operating revenues:
<S>                                  <C>      <C>       <C>      <C>        <C>      <C>  
 Passenger service..................  13.12    90.8%     12.95    90.3%      12.81    90.8%
 Cargo..............................   0.44     3.0%      0.48     3.3%       0.52     3.7%
 Other..............................   0.90     6.2%      0.92     6.4%       0.77     5.5%
                                      -----   -----      -----   -----       -----   -----
Total operating revenues............  14.46   100.0%     14.35   100.0%      14.10   100.0%

Operating expenses:
 Salaries,  wages and benefits......   4.18    28.9%      3.84    26.7%       3.61    25.6%
 Aircraft fuel and oil..............   1.60    11.0%      2.09    14.5%       2.19    15.5%
 Commissions........................   1.12     7.7%      1.31     9.2%       1.31     9.3%
 Dining services....................   0.73     5.0%      0.72     5.0%       0.70     4.9%
 Station rental/landing/other fees..   0.96     6.7%      1.02     7.1%       1.00     7.1%
 Aircraft maintenance materials/
  repairs...........................   1.37     9.5%      1.17     8.2%       0.99     7.0%
 Depreciation and amortization......   0.37     2.6%      0.36     2.5%       0.35     2.5%
 Aircraft rentals...................   0.72     5.0%      0.73     5.1%       0.74     5.3%
 Other..............................   1.34     9.3%      1.51    10.5%       1.62    11.5%
                                      -----   -----      -----   -----       -----   -----
Total operating expenses............  12.39    85.7%     12.75    88.8%      12.51    88.7%
                                      =====   =====      =====   =====       =====   =====
Total ASMs (millions)............... 2,689.7            2,401.3             2,160.9

Note: Numbers in this table cannot be recalculated due to rounding.

</TABLE>

                          Year Ended December 31, 1998
                    Compared to Year Ended December 31, 1997

Operating Revenues
The  Company's  operating  revenues  totaled  $388.9  million  in 1998,  a $44.3
million, or 12.9%, increase over 1997. Passenger revenues accounted for 90.8% of
total  revenues  and  increased  $41.9  million,  or 13.5%,  from 1997 to $352.9
million.  The  increase  was  primarily  attributable  to a  15.0%  increase  in
passenger  volume,  as measured  by revenue  passenger  miles,  offset by a 1.4%
decrease in revenue yield.

Midwest Express' passenger revenue increased $39.0 million to $311.9 million, or
14.3%,  from 1997.  This  increase was caused by a 13.7%  increase in passengers
carried and a 1.3% increase in passenger trip length,  partially offset by a .8%
decrease in revenue yield.  Midwest Express' capacity,  as measured by scheduled
service  ASMs,  increased  13.7%.  The increase in capacity was primarily due to
three  additional jet aircraft added to scheduled  service during the year. Load
factor  increased  to 65.0% in 1998 from 64.1% in 1997.  The slight  decrease in
revenue yield was caused by increased competitive pricing in some markets.

Passenger revenue at Astral Aviation,  Inc. ("Skyway") increased $2.9 million to
$41.1 million, or 7.7%, in 1998. This increase was caused by a 14.3% increase in
passengers  carried,  offset by a 3.8% decrease in revenue yield. Total capacity
increased  by 1.2%,  while load  factor  increased  from 43.6% to 48.2% in 1998.
Skyway's results benefited from several schedule changes and traffic diverted to
Skyway during and following  Northwest  Airlines' pilots' strike.


                                       19
<PAGE>

Mail and cargo revenue  increased  $.3 million,  or 2.6%, in 1998 due to the new
markets added during the year.

Revenue from other services  increased $2.1 million,  or 9.6%, in 1998.  Midwest
Express  benefited  from  increased  revenue of $2.7  million  from the  Midwest
Express  MasterCard  program  and $1.2  million in fees from  ticket  exchanges.
Charter  service  revenue  decreased  $2.0  million  due to delays  placing  new
aircraft  in  scheduled  service,  requiring  the use of the  dedicated  charter
aircraft.  Since Midwest Express  provides charter service to several NBA teams,
the delayed start-up of the NBA season also negatively  affected charter service
revenue.

Operating Expenses
1998 operating expenses increased $27.1 million,  or 8.9%, from 1997,  primarily
due to higher labor costs,  increased profit sharing,  higher  maintenance costs
and expenses associated with expanded operations. On a cost per total ASM basis,
Midwest  Express'   operating  expenses  decreased  2.6%,  from  12.14(cent)  to
11.82(cent) in 1998. Cost per total ASM at Skyway decreased .2% from 23.75(cent)
to 23.70(cent) in 1998.

Salaries,  wages and benefits increased $20.1 million, or 21.8%, from 1997. On a
cost per total ASM basis,  these  costs  increased  from  3.84(cent)  in 1997 to
4.18(cent),  or 8.7%,  in 1998.  Major  contributors  to the labor cost increase
included additional  employees necessary for expanded service and administrative
requirements  throughout the system,  increased labor rates and increased fringe
benefit costs.  The labor rate increase was due to an increase in pay scales for
most operations  employees at Midwest Express effective in January 1998, as well
as  merit  increases  for  salaried  employees.   These  rate  adjustments  were
implemented based on industry salary surveys and management's desire to increase
pay scales to maintain a competitive position in the industry.  Salaries,  wages
and benefits were adversely  affected by unanticipated  delays in completing new
aircraft  modifications and  refurbishments as initially  scheduled.  This delay
caused a temporary excess in aircraft flight crews. Profit sharing and incentive
plan costs  increased  $5.0 million in 1998.  The profit  sharing and  incentive
plans  benefit  substantially  all  employees  and  depend  almost  entirely  on
achieving certain levels of profitability.

Aircraft fuel and oil and associated  taxes  decreased  $7.2 million,  or 14.3%,
from 1997.  The  decrease was  primarily  the result of  into-plane  fuel prices
decreasing 22.3% in 1998,  averaging  56.8(cent) per gallon versus 73.1(cent) in
1997. The decrease was partially offset by fuel consumption that increased 10.4%
in 1998 primarily because Midwest Express operated 9.4% more aircraft hours. The
Company  experienced  continued  low  fuel  costs  in  January  1999,  averaging
51.2(cent) per gallon.

Commissions to travel agents and credit card companies decreased by $1.5 million
in 1998, or 4.6%. Commissions,  as a percent of passenger revenue,  decreased to
8.5% in 1998  from  10.1%  in  1997.  Most of the  reduction  was due to the new
commission  rate  structure  implemented  in the third  quarter  of 1997,  which
lowered travel agent  commissions from 10% to 8%. In addition,  more revenue was
realized in 1998 from direct sales via the  Company's  reservation  center,  Web
site and ticket counters.

Dining services increased by $2.5 million,  or 14.3%, due to a 13.7% increase in
passenger  volume at Midwest  Express.  Total dining  services costs  (including
food,  beverages,  linen, catering equipment and supplies) increased from $11.11
per Midwest Express passenger in 1997 to $11.17 in 1998.

Station  rental,  landing and other fees increased by $1.4 million,  or 5.7%, in
1998.  Midwest  Express'  airport costs  increased $1.3 million as a result of a
7.6%  increase in flight  segments.  In addition,  the Company  incurred  higher
facility costs and landing fees.

Aircraft maintenance, materials and repairs increased by $8.8 million, or 31.1%,
from 1997.  Midwest  Express'  maintenance  costs increased by $9.4 million,  or
41.5%,  and Skyway's  maintenance  costs  decreased $.6 million,  or 10.9%.  The
increase was attributable to more flight hours at Midwest Express,  higher costs
for major aircraft maintenance that required outsourcing, an increase in accrual
rates for future  engine and aircraft  overhauls and higher  aircraft  component
repair costs.

Depreciation  and  amortization  increased by $1.4 million,  or 15.9%,  in 1998,
primarily as a result of the  depreciation  associated  with aircraft  placed in
service,  capitalized  maintenance  and aircraft  engine hush kits  installed in
1998.

Aircraft rental costs  increased $1.8 million,  or 10.5%, in 1998 as a result of
Midwest Express leasing two additional aircraft.

Other  operating  expenses  decreased by $.2 million,  or .5%, from 1997.  Other
operating  expenses consist  primarily of advertising and promotion,  insurance,
property taxes,  reservation fees,  administration and other items. The decrease
was due to a $1.1 million  non-recurring  airport  rental  credit  received from
Milwaukee County due to an airport rental surplus,  and lower hull and liability
insurance  costs.  This was offset by higher  passenger  booking fees,  property
taxes, and professional and financial  services.  Other operating  expenses on a
cost per total ASM basis  decreased  11.2% to 1.34(cent) in 1998 from 1.51(cent)
in 1997.

Interest Income
Interest  income  reflects  interest  earned  on the  Company's  cash  and  cash
equivalents.

Provision for Income Taxes
Income tax expense in 1998 was $21.2  million,  an increase of $6.5 million from
1997.  The  effective  tax rate for 1998 and 1997 was  37.1%.  For  purposes  of
calculating the Company's income tax expense and effective tax rate, the Company
treats amounts payable to an affiliate of Kimberly-Clark, under a tax allocation
and separation  agreement  entered into in connection with the Company's initial
public offering, as if they were payable to taxing authorities.

Net Income
Net income  increased  $10.9 million,  or 43.8%,  in 1998. The net income margin
increased to 9.2% in 1998 from 7.2% in 1997.

                                       20
<PAGE>

                          Year Ended December 31, 1997
                    Compared to Year Ended December 31, 1996

Operating Revenues
The  Company's  operating  revenues  totaled  $344.6  million  in 1997,  a $39.8
million, or 13.1%, increase over 1996. Passenger revenues accounted for 90.3% of
total  revenues  and  increased  $34.2  million,  or 12.4%,  from 1996 to $311.0
million.  The increase was attributable to a 12.8% increase in passenger volume,
as  measured by revenue  passenger  miles,  offset by a .4%  decrease in revenue
yield.

Midwest Express' passenger revenue increased $33.6 million to $272.9 million, or
14.1%,  from 1996.  This  increase was caused by a 12.3%  increase in passengers
carried and a .3%  increase in revenue  yield.  Midwest  Express'  capacity,  as
measured by scheduled service ASMs, increased 12.5%. The increase in capacity is
primarily due to the addition of two DC-9 aircraft to scheduled  service  during
the year. Load factor increased to 64.1% in 1997 from 63.5% in 1996.  During the
year, revenue yield was negatively  impacted by the reinstatement of the federal
excise tax on passenger tickets effective March 7, 1997, and competitive pricing
pressures  on  several  new  routes.  Service  initiated  in  March  1997 in the
Milwaukee-Orlando  market resulted in lower yields as expected,  but higher load
factors than the remainder of the Midwest Express system. Fare increases late in
the third  quarter of 1997  contributed  favorably to revenue  yield.  Passenger
revenue at Skyway  increased by $.6 million to $38.1 million,  or 1.6%, in 1997.
This increase was caused by a 4.4% increase in revenue  yield,  offset by a 4.3%
decrease in passengers  carried.  Total capacity decreased 1.0%, as one aircraft
was  required for  scheduled  maintenance  during most of the year.  Load factor
decreased to 43.6% in 1997 from 44.3% in 1996.

Mail and cargo revenue  increased $.2 million,  or 1.3%, in 1997.  This increase
was due to the aircraft added to scheduled service during the year.

Revenue from other services  increased $5.4 million,  or 32.6%, in 1997. Midwest
Express  benefited  from  increased  revenue of $2.3  million  from the  Midwest
Express  MasterCard  program and  additional  ground  service  contracts of $1.2
million. Charter service revenue increased $1.2 million, because Midwest Express
had one aircraft dedicated to charter operations during the first four months of
1997 but did not have a  dedicated  aircraft  until the second  quarter of 1996.
During  portions of the second and third quarters of 1997,  Midwest  Express had
delays with an aircraft  refurbishment  that  required the use of the  dedicated
charter jet aircraft for scheduled service.

Operating Expenses
1997 operating expenses increased $35.7 million, or 13.2%, from 1996,  primarily
due to  expanded  operations.  On a cost per total ASM basis,  Midwest  Express'
operating  expenses  increased 1.4%, from  11.97(cent) in 1996 to 12.14(cent) in
1997.  Cost  per  total  ASM at  Skyway  increased  10.0%  from  21.59(cent)  to
23.75(cent) in 1997.

Salaries,  wages and benefits increased $14.2 million, or 18.2%, from 1996. On a
cost per total ASM basis,  these  costs  increased  from  3.61(cent)  in 1996 to
3.84(cent),  or 6.4%,  in 1997.  The labor cost increase was primarily due to an
increase  in  the  number  of  employees  necessary  for  expanded  service  and
administrative  requirements.  Midwest  Express added  employees  throughout the
organization  to support the aircraft placed in service during 1996 and 1997. In
addition, employees were added to support aircraft ground handling operations in
Boston, Kansas City and Washington,  D.C., which were previously contracted from
other airlines.  Salaries, wages and benefits were also adversely affected by an
unanticipated  delay  in  completing  several  new  aircraft  modifications  and
refurbishments as initially  scheduled.  This delay caused a temporary excess in
aircraft  flight crews during 1997's second and third  quarters.  The labor cost
increase  was also  due to an  adjustment  in pay  scales  for  most  operations
employees at Midwest Express  effective in January 1997.  These rate adjustments
were  implemented  based on industry salary surveys and  management's  desire to
increase pay scales to maintain a competitive  position in the industry.  Profit
sharing decreased $.5 million in 1997 from 1996.

Aircraft fuel and oil and associated taxes increased $2.8 million, or 6.0%, from
1996.  Into-plane fuel prices decreased 5.3% in 1997,  averaging  73.1(cent) per
gallon in 1997 and 77.2(cent) in 1996. Fuel consumption  increased 12.0% in 1997
because Midwest Express operated 12.1% more aircraft hours.

Commissions  increased by $3.2  million,  or 11.4%,  due to increased  passenger
revenue.  Of the  increase,  $2.3  million  related to increased  travel  agency
commissions  and $.9 million to  increased  credit card fees.  Commissions  as a
percent of passenger  revenue  decreased from 10.2% in 1996 to 10.1% in 1997 due
to a new commission rate structure  effective  September 25, 1997, which lowered
travel agent  commissions  from 10% to 8%. The Company's 1997  operating  income
would have  increased  approximately  $3.2 million had the new  commission  rate
structure been in place during the entire year.

Dining services increased by $2.1 million,  or 13.9%, due to increased passenger
volume. Total dining services costs (including food, beverages,  linen, catering
equipment and supplies)  increased from $10.95 per Midwest Express  passenger in
1996 to $11.11 in 1997.

Station rental,  landing and other fees increased by $2.9 million,  or 13.3%, in
1997.  Airport costs at Midwest Express  increased $2.6 million as a result of a
9.8%  increase in flight  segments.  In addition,  the Company  incurred  higher
landing fees, security costs and facility rental costs at most airports.

Aircraft maintenance, materials and repairs increased by $6.9 million, or 32.2%,
from 1996.  Midwest  Express  maintenance  costs  increased by $5.4 million,  or
31.1%,  and Skyway  maintenance  costs  increased  $1.5 million,  or 36.5%.  The
increase was attributable in part to an unscheduled  repair of one MD-88 engine,
which  adversely  affected  costs  by  $1.3  million.   The  increase  was  also
attributable to more flight hours at Midwest Express,  an increase in the number
and cost of aircraft  component  repairs,  and an increase in Skyway maintenance
due to  scheduled  landing gear and  propeller  repairs and  unscheduled  engine
maintenance.

Depreciation  and  amortization  increased by $1.0 million,  or 12.8%,  in 1997,
primarily as a result of the  depreciation  associated with capital spending and
the decision to exercise  purchase options on two leased jet aircraft in October
1996, offset by two jet aircraft becoming fully depreciated during both 1996 and
1997.

Aircraft  rental costs  increased $1.4 million,  or 8.7%, in 1997 as a result of
Midwest  Express  leasing  two  additional  aircraft.


                                       21
<PAGE>

The  increased  cost was  partially  offset by lower lease costs for Skyway's 15
turboprop  aircraft  that were  refinanced  in the second and third  quarters of
1996, and the decision to exercise  purchase  options on two leased  aircraft in
October  1996.  In  addition,  the Company  leased a second spare engine for its
MD-88 aircraft for nine months during 1997.

Other operating  expenses  increased by $1.2 million,  or 3.5%, from 1996. Other
operating  expenses consist  primarily of advertising and promotion,  insurance,
property  taxes,  reservation  fees,  administration  and other items.  Expenses
increased due to additional  overnight  costs  associated  with flight  schedule
changes,    professional   and   financial   services,   software   costs,   and
telecommunication  costs. The increased costs were partially offset by decreases
in property taxes,  facilities rental, and headquarters  relocation costs. Other
operating  expenses on a cost per total ASM basis decreased 6.9% from 1.62(cent)
in 1996 to 1.51(cent) in 1997.

Interest Income
Interest  income  reflects  interest  income  on the  Company's  cash  and  cash
equivalents.

Other Income and Expense
Other  expenses in 1996  primarily  reflected the costs of the secondary  public
offering completed in the second quarter.

Provision for Income Taxes
Income tax expense in 1997 was $14.7  million,  an increase of $1.2 million from
1996.  The  effective  tax  rates  for 1997  and  1996  were  37.1%  and  38.3%,
respectively.

Net Income
Net income  increased by $3.2 million,  or 14.7%, in 1997. The net income margin
increased to 7.2% in 1997 from 7.1% in 1996.

                        Liquidity and Capital Resources

The Company's  cash and cash  equivalents  totaled $13.5 million at December 31,
1998  compared  to $32.1  million at December  31,  1997.  Net cash  provided by
operating  activities  totaled  $57.5  million  during  1998.  Net cash  used in
investing   activities   totaled  $83.8   million,   primarily  due  to  capital
expenditures of $86.2 million,  including $11.9 million of purchase  deposits on
flight equipment. Net cash provided by financing activities totaled $7.7 million
during 1998.

The Company had a working  capital  deficit of $42.5  million as of December 31,
1998,  versus a $12.9 million  deficit on December 31, 1997. The working capital
deficit  is  primarily  due  to  the  Company's  air  traffic  liability  (which
represents  deferred  revenue  for advance  bookings,  whereby  passengers  have
purchased  tickets for future  flights  which is  recognized  when the passenger
travels).  Because of this, the Company  expects to operate at a working capital
deficit, which is not unusual for the industry.

As of December 31, 1998,  the Company's two credit  facilities,  a $55.0 million
revolving bank credit facility and a $20.0 million  secondary  revolving  credit
facility with  Kimberly-Clark,  have not been used, except for letters of credit
totaling approximately $16.1 million that reduce the amount of available credit.
The letters of credit are used to secure certain  reserve amounts for stipulated
airframe and engine  maintenance  on Midwest  Express' MD-88  aircraft,  support
financing  on the  Company's  new  maintenance  facility  and for various  other
purposes.

Capital  expenditures  totaled $86.2  million for the period ended  December 31,
1998,  including  $11.9  million  of  purchase  deposits  on  flight  equipment.
Expenditures  consisted primarily of aircraft purchases and refurbishment costs.
Other capital  expenditures  included  capitalized engine and airframe overhauls
and  aircraft  engine hush kit  components.  The Company  expects to incur $63.5
million of capital spending in 1999, $37.8 of which is associated with the MD-80
aircraft  acquisition  program.  The  remaining  spending  primarily  relates to
maintenance projects,  including completion of the aircraft hush kit program and
acquisition of spare engines and capitalized  spare parts. This capital spending
excludes the Company's  five aircraft  regional jet program,  as the decision to
lease versus own these aircraft has not been completed.

During 1997 the Company executed  definitive purchase documents to acquire eight
McDonnell  Douglas MD-80 series  aircraft.  The Company  financed the first four
deliveries, including refurbishment costs, in 1998 primarily using internal cash
flow,  and expects to finance the remaining  four aircraft  using  internal cash
flow as well.

Leases  relating  to three  Midwest  Express  jet  aircraft  are  guaranteed  by
Kimberly-Clark.  The Company pays  Kimberly-Clark a guarantee fee equal to 1.25%
annually of the outstanding lease commitments.  Kimberly-Clark  will continue to
guarantee  the  leases  for the three  aircraft  until the  expiration  of their
initial  lease terms.  The first of these jet aircraft  leases  expires in 2001.
Aircraft lease guarantee fees will be approximately $.1 million in 1999.

The  Company's  Board of Directors has  authorized a $15.0 million  common stock
repurchase  program.  During the third quarter of 1998, the Company  repurchased
65,300 shares of common stock  totaling  $2.0 million.  As of December 31, 1998,
the  Company  purchased a total of 418,625  shares of common  stock at a cost of
$6.8 million under the share repurchase program.

In October  1998  Midwest  Express  moved into a newly  constructed  maintenance
facility  that is owned by  Milwaukee  County and  located  at General  Mitchell
International  Airport. To finance the estimated $8.3 million project, the City
of Milwaukee issued variable-rate  demand industrial  development revenue bonds.
The Company's  variable rent payments are based on the current  interest rate on
the City of Milwaukee's outstanding bonds over the 32-year lease term. The bonds
are  secured  by a  promissory  note  between  Midwest  Express  and the City of
Milwaukee, with further security provided by Firstar Bank Milwaukee, N.A.

The  Company  believes  existing  cash  and cash  equivalents,  cash  flow  from
operations,  funds  available  from credit  facilities  and available  long-term
financing  for the  acquisition  of jet  aircraft  will be  adequate to meet its
current and anticipated working capital requirements and capital expenditures.

                              Pending Developments

Forward-Looking  Statements -- This Annual Report, and particularly this Pending
Developments  section,  contains  forward-looking  statements that may state the
Company's  or  management's   intentions,   hopes,   beliefs,   expectations  or
predictions for the future. The Company's actual results could


                                       22
<PAGE>

differ materially from those projected results due to factors that include,  but
are not limited to, uncertainties related to general economic factors,  industry
conditions,   scheduling   developments,    government   regulations,   aircraft
maintenance and  refurbishment  schedules,  potential delays related to acquired
aircraft and year 2000 compliance.  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 SEC
filings,  including  but not limited to the Company's  prospectus  dated May 23,
1996 included in the Registration Statement on Form S-1 No. 333-03325.

MD-80 Series Aircraft -- During January 1999 Midwest Express placed into service
the  second and third of eight  MD-80  series  aircraft  the  Company  agreed to
purchase in 1997. The fourth and fifth aircraft are presently being  refurbished
with in-service  dates scheduled for May and August.  The sixth aircraft will be
received in March and placed in service in October 1999.  The seventh and eighth
aircraft will be received in the fourth  quarter and will enter service in early
2000. The Company has financed all  deliveries  thus far with internal cash flow
and expects to do the same for the remaining  aircraft.  These  aircraft will be
used to  increase  capacity  on the  Company's  high-traffic  routes  and expand
service in existing or new markets.

Regional Jet Aircraft -- Astral  Aviation  expects to take delivery of the first
of five new  Fairchild  Aerospace  328JET  aircraft  in June 1999.  All five are
expected to be in service by the end of 1999. The Company also holds options for
10 additional  aircraft to support future growth,  which are  exercisable  after
2001. Plans for these 32-passenger aircraft have not been announced. The Company
expects  that the cost of these  five  aircraft,  including  purchase  price and
support equipment,  will total approximately $55.0 million, and will be financed
as  deliveries  take place.  The  Company is  continuing  to evaluate  financing
alternatives.

Labor  Relations -- In December 1997 Midwest Express pilots elected the Air Line
Pilots  Association  ("ALPA")  for  representation  in  collective   bargaining.
Negotiations are in progress. In January 1998, Skyway pilots represented by ALPA
ratified a  four-year  labor  contract.  No other  employees  in the Company are
currently unionized.

Sales Taxes -- During 1996 the  Wisconsin  Department  of Revenue  asserted that
Wisconsin  sales  taxes  should  be paid in  connection  with  Midwest  Express'
purchase of meals from its food caterer.  While Midwest Express does not believe
any such sales tax is payable, if the Department of Revenue successfully asserts
its position, then Midwest Express would be liable for back taxes and associated
interest of approximately  $.7 million,  and would have to pay approximately $.3
million in additional sales taxes annually in the future.

Year  2000 -- The  Company  established  a year  2000  team in  January  1998 to
evaluate and remediate any year 2000 issues. As a result of the Company becoming
publicly owned in September 1995, many systems required  immediate  replacement.
All of the  replacement  systems  purchased  were  represented  to be year  2000
compliant by their  respective  vendors.  In mid-1997,  the Company designed and
implemented    a    technology     infrastructure    comprising    almost    all
year-2000-compliant   products.

Notwithstanding  the above,  the Company has developed  plans to address  issues
related to the impact of the year 2000 on its business.  The Company's Year 2000
Project  involves  five  phases:  Awareness,  Inventory/Assessment,  Renovation,
Validation and Implementation. Internal financial, operational,  non-information
technology  systems and external  interfaces have been inventoried and assessed,
and plans have been  developed  to  remediate  any  non-compliant  systems.  The
Company has one major internally  developed and maintained  system that requires
modifications.  This system -- which is used for purchasing, inventory, accounts
payable and  aircraft  maintenance  planning  and records -- is  scheduled to be
modified by September 1999. The Company is also evaluating  systems that include
embedded  technology,  such  as  microcontrollers  in  aircraft  parts,  airport
equipment and facility  infrastructures.  The Company  estimates  that the total
cost  of  achieving  year  2000  readiness   will   approximate   $1.0  million,
approximately 50% of which is from reallocation of existing internal resources.

The Company  realizes  that  preparedness  is also  predicated  on many external
factors.  Therefore,  the Company is actively pursuing  suppliers and vendors to
evaluate  their  respective  levels of  preparedness.  Questionnaires  have been
mailed to the most  critical  suppliers  and vendors,  and  evaluation  of their
preparedness is in process.  Follow-up action is dictated by the priority of the
service or  commodity  used,  and the  response  received.  The  Company is also
participating  with the airline industry to identify  potential year 2000 issues
at  airports  and within  industry  infrastructure,  including  common  vendors,
suppliers,  government agencies and the Federal Aviation Administration ("FAA").
FAA  operations  are made possible by many critical  computer  systems;  without
these  specialized  systems,  the FAA could not effectively  control the current
level of air traffic,  target  airlines for  inspection,  or provide  up-to-date
weather conditions to pilots and air traffic controllers.

The implications for the Company,  a critical vendor or supplier,  or the FAA of
not being prepared for the year 2000 could have a material adverse effect on the
Company,  resulting  in customer  inconvenience,  increased  costs,  grounded or
delayed  flights,  or a degraded  level of  safety.  To be  prepared  to address
unexpected occurrences, contingency plans will be developed during the first six
months of 1999 for those scenarios within the Company's control. However, due to
the complexity and  pervasiveness  of the year 2000 issue, and in particular the
uncertainty regarding the compliance programs of third parties, no assurance can
be given that the Company's estimates will be achieved, and actual results could
differ materially from those anticipated.

Maintenance  Program -- The Company is  evaluating a new program for  performing
airframe  maintenance  overhauls  in 1999  that  may  necessitate  a  change  in
accounting  principle.  This proposed  change will  eliminate  accruals of heavy
maintenance  expense and  amortization  of capitalized  maintenance,  which will
result in such costs being  expensed as incurred.  Under the  proposed  program,
major airframe maintenance will be performed at more frequent intervals and many
duplicate tasks  eliminated.  The Company  believes that the financial impact of
making the required  change will not be material to the  Company's  consolidated
financial position, results of operations or cash flows.


                                       23
<PAGE>


                      REPORT OF MANAGEMENT

To the Shareholders of Midwest Express Holdings, Inc.:

The  management  of  Midwest  Express  Holdings,  Inc.  is  responsible  for the
preparation,  content, integrity and objectivity of the financial statements and
other information contained in this annual report. The financial statements were
prepared using generally accepted accounting principles, applied on a consistent
basis.  The statements  have been audited by Deloitte & Touche LLP,  independent
auditors, whose report appears on the next page.

The Company  maintains a system of internal control that is supported by written
policies and  procedures,  and is monitored by management and the internal audit
function.  Although all internal  control  systems  have  inherent  limitations,
including the possibility of circumvention and overriding  controls,  management
believes the Company's internal control system provides reasonable  assurance as
to the integrity and reliability of the financial statements and that its assets
are  safeguarded   against   unauthorized   acquisition,   use  or  disposition.
Appropriate actions are taken by management to correct  deficiencies as they are
identified.

The Audit  Committee of the Board of  Directors is composed  entirely of outside
directors.  The Committee meets  periodically with the Company's  management and
internal audit function and with its  independent  auditors to review  auditing,
internal control and financial reporting matters.

Based on its assessment of internal control as of December 31, 1998,  management
believes  its system of  internal  control  over the  preparation  of  financial
statements and the safeguarding of assets is effective.


/s/ Timothy E. Hoeksema
Timothy E. Hoeksema
Chairman, President and Chief Executive Officer


/s/ Robert S. Bahlman
Robert S. Bahlman
Senior Vice President and Chief Financial Officer


                                       24
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of Midwest Express Holdings, Inc.:

We have audited the accompanying  consolidated balance sheets of Midwest Express
Holdings,  Inc. and its  subsidiary  as of December  31, 1998 and 1997,  and the
related consolidated  statements of income,  shareholders' equity and cash flows
for each of the  three  years in the  period  ended  December  31,  1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of Midwest Express Holdings,  Inc. and
its  subsidiary  as of  December  31,  1998 and 1997,  and the  results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.


/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin
January 29, 1999


                                       25
<PAGE>


                       CONSOLIDATED STATEMENTS OF INCOME

MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                         1998       1997        1996
Operating revenues:
  Passenger service................   $352,933   $311,022    $276,792
  Cargo............................     11,761     11,466      11,316
  Other............................     24,180     22,069      16,638
                                      --------   --------    --------
    Total operating revenues.......   $388,874   $344,557    $304,746
                                      --------   --------    --------

Operating expenses:
  Salaries, wages and benefits.....    112,315     92,207      78,015
  Aircraft fuel and oil............     42,925     50,107      47,274
  Commissions......................     30,080     31,535      28,310
  Dining services..................     19,633     17,181      15,078
  Station rental, landing and
   other fees......................     25,933     24,526      21,652
  Aircraft maintenance materials
   and repairs.....................     36,961     28,190      21,316
  Depreciation and amortization....     10,021      8,645       7,663
  Aircraft rentals.................     19,290     17,453      16,054
  Other............................     36,061     36,243      35,025
                                      --------   --------    --------
    Total operating expenses           333,219    306,087     270,387
                                      --------   --------    --------
Operating income...................     55,655     38,470      34,359
                                      --------   --------    --------

Other income (expense):
  Interest income..................      1,727      1,419       1,084
  Interest expense.................       (280)       (95)          -
  Other, net.......................        (75)      (162)       (211)
                                      --------   --------    --------
    Total other income (expense)...      1,372      1,162         873
                                      --------   --------    --------

Income before income taxes.........     57,027     39,632      35,232
Provision for income taxes.........     21,158     14,692      13,482
                                      --------   --------    --------
Net income.........................   $ 35,869   $ 24,940    $ 21,750
                                      ========   ========    ========

Net income per share - basic.......      $2.54      $1.76       $1.51
                                         =====      =====       =====
Net income per share - duluted.....      $2.51      $1.74       $1.50
                                         =====      =====       =====


See notes to consolidated financial statements.


                                       26
<PAGE>


                          CONSOLIDATED BALANCE SHEETS

MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)

                                                             1998       1997

                                     ASSETS
Current assets:
  Cash and cash equivalents..........................    $ 13,455   $ 32,066  
  Accounts receivable:
    Traffic, less allowance for doubtful accounts
     of $251 in 1998 and $231 in 1997................       5,450      5,106   
    Other receivables................................       3,804        444  
                                                         --------   --------
      Total accounts receivable......................       9,254      5,550
  Inventories........................................       4,020      3,942   
  Prepaid expenses:
    Commissions......................................       2,931      1,509   
    Other............................................       3,427      1,905   
                                                         --------   --------
      Total prepaid expenses.........................       6,358      3,414   
  Aircraft and modifications intended to be
    financed by sale and leaseback transactions......         951      6,000   
  Deferred income taxes..............................       5,521      4,655   
                                                         --------   --------
      Total current assets...........................      39,559     55,627   
                                                         --------   --------
  Property and equipment, net........................     160,583     89,156   
  Landing slots and leasehold rights, less
    accumulated amortization of $2,178 in
    1998 and $1,850 in 1997..........................       4,572      4,900   
  Purchase deposits on flight equipment..............      13,383     14,500   
  Other assets.......................................       2,380      2,565   
                                                         --------   --------
  Total assets.......................................    $220,477   $166,748
                                                         ========   ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
  Accounts payable...................................    $  5,064   $  5,560   
  Air traffic liability..............................      35,285     28,934   
  Accrued liabilities:
    Scheduled maintenance expense....................       5,182      7,115
    Accrued profit sharing...........................       9,518      4,855   
    Vacation pay.....................................       4,066      3,586   
    Frequent Flyer awards............................       3,653      3,400   
    Other............................................      19,253     15,033   
                                                         --------   --------
      Total current liabilities......................      82,021     68,483   
                                                         --------   --------
Long-term debt.......................................       3,206      3,333   
Deferred income taxes................................      13,647     12,509   
Noncurrent scheduled maintenance expense.............      12,082      7,594   
Accrued pension and other postretirement benefits....       6,201      5,462
Other noncurrent liabilities.........................       5,688      5,969   
                                                         --------   --------
Total liabilities....................................     122,845    103,350  
                                                         --------   --------
Shareholders' equity:
  Preferred stock, without par value, 5,000,000
   shares authorized, no shares issued or
   outstanding.......................................           -          -   
  Common stock, $.01 par value, 25,000,000 shares
   authorized, no shares issued or outstanding.......         145         96   
  Additional paid-in capital.........................       9,680      9,531   
  Treasury stock, at cost; 381,015 shares in 
   1998 and 223,490 shares in 1997...................      (6,401)    (4,572)  
  Retained earnings..................................      94,208     58,343   
                                                         --------   --------
Total shareholders' equity...........................      97,632     63,398   
                                                         --------   --------
Total liabilities and shareholders' equity...........    $220,477   $166,748 
                                                         ========   ========

See notes to consolidated financial statements.


                                       27
<PAGE>


                     CONSOLIDATED STATEMENTS OF CASH FLOWS

MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)

                                                        1998      1997     1996

Operating activities:
 Net income......................................... $35,869   $24,940  $21,750
 Items not involving the use of cash:
   Depreciation and amortization....................  10,021     8,645    7,663
   Deferred income taxes............................     272     1,294   (3,918)
   Other............................................   4,974     4,335    3,245
 Changes in operating assets and liabilities:
   Accounts receivable..............................  (3,704)     (319)     483
   Inventories......................................     (78)     (820)    (396)
   Prepaid expenses.................................  (2,990)      833     (715)
   Accounts payable.................................    (496)    1,876       (3)
   Accrued liabilities..............................   7,281     1,236   12,139
   Air traffic liability............................   6,352     6,891    4,793
                                                     -------   -------  -------
  Net cash provided by operating activities.........  57,501    48,911   45,041
                                                     -------   -------  -------

Investing activities:
  Capital expenditures.............................. (74,332)  (27,617) (25,607)
  Aircraft acquisitions and modifications financed
   by or intended to be financed by sale and
   leaseback transactions...........................     557   (12,520) (86,771)
  Purchase deposits on flight equipment............. (10,800)  (14,500)       - 
  Proceeds from sale of property and equipment......     336       196       22 
  Other.............................................     451    (2,128)    (151)
                                                     -------   -------  -------
  Net cash used in investing activities............. (83,788)  (56,569)(112,507)
                                                     -------   -------  -------

Financing Activities:
  Proceeds from sale and leaseback transactions.....   4,492    15,566   83,895
  Purchase of treasury stock........................  (2,003)   (1,977)  (2,790)
  Other.............................................   5,187    (1,454)    (676)
                                                     -------   -------  -------
  Net cash provided by financing activities.........   7,676    12,135   80,429
                                                     -------   -------  -------
 
  Net (decrease) increase in cash and 
    cash equivalents................................ (18,611)    4,477   12,963
  Cash and cash equivalents, beginning of year......  32,066    27,589   14,626
                                                     -------   -------  -------
  Cash and cash equivalents, end of year............ $13,455   $32,066  $27,589
                                                     =======   =======  ======= 
  Supplemental cash flow information:
    Cash paid for:
     Income taxes................................... $22,754*  $11,948* $19,776*
     Interest....................................... $   280   $    95  $     -
 
  Supplemental schedule of non-cash 
    financing activities:
   Long-term debt assumed in connection 
    with capital expenditures....................... $     -   $ 3,487  $     -

  Supplemental schedule of investing activities:
    Transfer of flight equipment from purchase 
     deposits to property and equipment............. $11,917   $     -  $     -



* Included in taxes paid are amounts paid to Kimberly-Clark in accordance with
the Tax Agreement totaling $4,535 in 1998, $5,996 in 1997 and $9,243 in 1996.


See notes to consolidated financial statements.


                                       28
<PAGE>


                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                      Common       Additional                                  Total
                                                     Stock $.01     Paid-in      Treasury     Retained      Shareholders'
                                                     par value      Capital       Stock       Earnings         Equity
<S>                                                     <C>          <C>         <C>          <C>              <C>
Balances at December 31, 1995....................       $ 64         $9,546       $    -      $11,654          $21,264
 Net income......................................          -              -            -       21,750           21,750
 Purchase of 103,700 shares of treasury stock....          -              -       (2,790)           -           (2,790)
 Issuance of treasury stock upon exercise
  of stock options and related tax benefits......          -             (5)         107            -              102
 Other...........................................          -              4           11            -               15
                                                        ----          -----       ------       ------           ------
Balances at December 31, 1996....................         64          9,545       (2,672)      33,404           40,341
 Net income......................................          -              -            -       24,940           24,940
 Stock split effected in the form of a dividend..         32            (31)           -           (1)               -
 Purchase of 80,000 shares of treasury stock.....          -              -       (1,977)           -           (1,977)
 Issuance of treasury stock upon exercise
   of stock options and related tax benefits.....          -              3           52            -               55
 Other...........................................          -             14           25            -               39
                                                        ----          -----       ------       ------           ------
Balances at December 31, 1997....................         96          9,531       (4,572)      58,343           63,398
 Net income......................................          -              -            -       35,869           35,869
 Stock split effected in the form of a dividend..         49            (49)           -            -                -
 Purchase of 65,300 shares of treasury stock.....          -              -       (2,003)           -           (2,003)
 Issuance of treasury stock upon exercise
   of stock options and related tax benefits.....          -            122          132            -              254
 Other...........................................          -             76           42           (4)             114
                                                        ----          -----       ------       ------           ------
Balances at December 31, 1998....................       $145         $9,680      $(6,401)     $94,208          $97,632
                                                        ====         ======      =======      =======          =======


See notes to consolidated financial statements.
</TABLE>


                                       29
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


Note  1.  Business  and  Basis  of  Presentation
Basis  of  Presentation
The accompanying  Consolidated Financial Statements of Midwest Express Holdings,
Inc.  (collectively,  the  "Company")  include the  accounts of Midwest  Express
Airlines,  Inc. ("Midwest  Express"),  a wholly owned subsidiary of the Company,
and Astral  Aviation,  Inc.  ("Astral"),  a wholly owned  subsidiary  of Midwest
Express that does business as Skyway Airlines.  All  inter-company  balances and
transactions have been eliminated.

Nature of Operations
Midwest Express is a U.S. air carrier  providing  non-stop  scheduled  passenger
service between Milwaukee and 26 destinations in North America. The Company also
provides  aircraft  charter  services,  air freight and other airline  services.
Midwest Express  established  Omaha,  Nebraska,  as its first base of operations
outside of Milwaukee in May 1994 and provides  nonstop jet service between Omaha
and six destinations.  Astral provides regional  scheduled  passenger service to
cities primarily in the upper Midwest.

Stock Splits
On April  23,  1997,  the  Company  announced  that its Board of  Directors  had
approved a plan to split its stock 3-for-2 in the form of a 50% stock  dividend.
The new shares were issued May 28, 1997, to shareholders of record as of May 12,
1997.

On April  22,  1998,  the  Company  announced  that its Board of  Directors  had
approved a plan to split its stock 3-for-2 in the form of a 50% stock  dividend.
The new shares were issued May 27, 1998, to shareholders of record as of May 11,
1998.

Note 2. Accounting Policies
The accounting  policies of the Company conform to generally accepted accounting
principles  and to  accounting  practices  generally  followed  in  the  airline
industry. Significant policies followed are described below.

Cash and Cash Equivalents
The Company considers all highly liquid investments with purchased maturities of
three  months or less to be cash  equivalents.  They are carried at cost,  which
approximates market.

Inventories
Inventories  consist  primarily  of  aircraft  maintenance  parts,   maintenance
supplies and fuel stated at the lower of cost on the first-in,  first-out (FIFO)
method or market and are expensed when used in operations.

Property and Equipment
Property and equipment is stated at cost and is depreciated on the straight-line
method applied to each unit of property for financial  reporting purposes and by
use of accelerated methods for income tax purposes.  Aircraft are depreciated to
estimated  residual values,  and any gain or loss on disposal would be reflected
in income.  The  depreciable  lives for the principal  asset  categories  are as
follows:

      Asset Category                    Depreciable Life
      --------------                    ----------------
      Flight equipment                  10 to 15 years
      Other equipment                   5 to 8 years
      Office furniture and equipment    5 to 20 years
      Buildings                         40 years
      Building improvements             Lesser of 20 years or
                                        remaining life of building

Other Assets
Airport  take-off and landing slots have an unlimited  life,  have  historically
appreciated in value and are occasionally traded, sold or leased among airlines.
The cost of take-off and landing slots is amortized on the straight-line  method
over 20 years,  consistent with industry practice. The cost of airport leasehold
rights is amortized on the straight-line  method over the term of the lease. The
cost of capitalized  software is amortized on the straight-line method over five
years or less.

Revenue Recognition
Passenger  and cargo  revenues are  recognized in the period when the service is
provided.  Contract maintenance revenue is recognized when work is completed and
invoiced.  The estimated liability for sold, but unused,  tickets is included in
current liabilities as air traffic liability.

Maintenance and Repair Costs
Routine  maintenance  and repair costs for owned and leased aircraft are charged
to expense when incurred.  Depending on the particular aircraft or engine, major
airframe and engine  maintenance  costs are either (1) accrued to expense on the
basis of estimated  future costs and the estimated number of future flight hours
or the  number  of  future  take-offs  and  landings  between  overhauls  or (2)
capitalized  when incurred and amortized on the basis of the estimated number of
future  flight  hours or the number of future  take-offs  and  landings  between
overhauls.  The actual  maintenance and repair costs to be incurred could differ
from the Company's estimates.

Frequent Flyer Program
The estimated incremental cost of providing future transportation in conjunction
with the  Company's  Frequent  Flyer  program  is  accrued  based  on  estimated
redemption  percentages applied to actual mileage recorded in members' accounts.
The ultimate  cost,  however,  will depend on the actual  redemption of Frequent
Flyer miles and may be greater than amounts accrued at December 31, 1998.

Postretirement Health Care and Life Insurance Benefits
The costs of health care and life insurance  benefit plans for retired employees
are accrued over the working lives of employees in accordance  with Statement of
Financial  Accounting  Standards  (SFAS) No.  106,  "Employers'  Accounting  for
Postretirement Benefits Other Than Pensions."

Income Taxes
The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting  for Income Taxes." SFAS No. 109 requires that deferred income taxes
be determined under the asset and liability  method.  Deferred income taxes have
been  recognized  for the future tax  consequences  of temporary  differences by
applying  enacted  statutory  tax rates  applicable to  differences  between the
financial reporting and the tax bases of assets and liabilities.

Prior to 1995, the Company was a member of the Kimberly-Clark consolidated group
and, as such, filed a consolidated federal income tax return with Kimberly-Clark
and its U.S. subsidiaries. The Company also filed consolidated state tax returns
with  Kimberly-Clark  and certain of its subsidiaries,  as well as separately in
various  states.   Income  tax  expense  and  deferred  income  tax  assets  and
liabilities  are reflected in the Company's  financial  statements in accordance
with SFAS No. 109.

Leases
Rental obligations under operating leases for aircraft, facilities and equipment
are charged to expense on the straight-line method over the term of the lease.

                                       30
<PAGE>

Hedging Transactions
The Company has entered  into  hedging  arrangements  to reduce its  exposure to
fluctuations in the price of jet fuel.  Contracts entered into were not material
as of December 31, 1998. Net settlements are recorded as adjustments to aircraft
fuel expense.

Use of Estimates
The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the reported  amounts of revenues and expenses  during the year.
Future results could differ from those estimates.

Accounting Standard to Be Adopted
In  1998  the  Financial   Accounting  Standards  Board  issued  SFAS  No.  133,
"Accounting for Derivative  Instruments and Hedging  Activities." The Company is
currently in the process of evaluating the accounting and disclosure  effects of
this  Statement and  anticipates  adopting the Statement in the first quarter of
2000.

Reclassifications
Certain  reclassifications  have been made in prior year financial statements to
conform to the current year presentation.

Note 3. Property and Equipment
As of December  31,  1998 and 1997,  property  and  equipment  consisted  of the
following (in thousands):

                                          1998            1997
Flight equipment.....................   $150,622        $119,409
Other equipment......................     10,143           8,547
Buildings and improvements...........     17,746          16,911
Office furniture and equipment.......     10,140           8,430
Construction in progress.............     54,633           6,751
                                        --------        --------
                                         243,284         160,048
Less accumulated depreciation........    (82,701)        (70,892)
                                        --------        --------
Property and equipment, net..........   $160,583        $ 89,156
                                        ========        ========

Note 4. Leases
The Company leases aircraft,  terminal space,  office space and warehouse space.
Future minimum lease payments  required under operating leases having initial or
remaining  noncancelable  lease terms in excess of one year as of  December  31,
1998 were as follows (in thousands):

Year ended December 31,
1999.........................................  $ 23,591
2000.........................................    19,942
2001.........................................    15,894
2002.........................................    13,754
2003.........................................    13,226
2004 and thereafter..........................    78,440
                                               --------
                                               $164,847
                                               ========

As of December 31, 1998, the Company had 12 of its jet aircraft in service under
operating leases,  three of which have been guaranteed by Kimberly-Clark.  These
leases have expiration dates ranging from 2000 through 2008 and can generally be
renewed,  based on fair market  value at the end of the lease  term,  for one to
three years.  Ten of the leases include  purchase  options at or near the end of
the lease term at fair market value,  but generally not in excess of the defined
lessor's cost of the aircraft.

As of December 31,  1998,  the  Company's  turboprop  fleet was  financed  under
operating  leases with initial lease terms of five to 12 years,  and  expiration
dates  ranging from 2001 through 2008.  These leases permit  renewal for various
periods at rates approximating fair market value and purchase options at or near
the end of the lease term at fair market value.

In October  1998  Midwest  Express  moved into a newly  constructed  maintenance
facility  that is owned by  Milwaukee  County and  located  at General  Mitchell
International  Airport . To finance the estimated $8.3 million project, the City
of Milwaukee issued variable-rate  demand industrial  development revenue bonds.
The Company's  variable rent payments are based on the current  interest rate on
the City of Milwaukee's outstanding bonds over the 32-year lease term. The bonds
are  secured  by a  promissory  note  between  Midwest  Express  and the City of
Milwaukee, with further security provided by Firstar Bank Milwaukee, N.A.

Rent expense for all operating leases,  excluding landing fees, was $28,088,000,
$25,435,000 and $24,356,000 for 1998, 1997 and 1996, respectively.

Note 5. Financing Agreements
At December 31, 1998,  the Company had  available two credit  facilities:  (1) a
$55.0 million revolving credit facility with three banks and (2) a $20.0 million
secondary  revolving credit facility with  Kimberly-Clark.  Borrowings under the
Kimberly-Clark  facility  must be repaid prior to  repayments on the bank credit
facility.  The bank credit  facility  requires an annual  commitment fee of 12.5
basis  points on the average  unused  commitment  with  interest  payable on the
outstanding  principal balance at LIBOR plus 50 basis points. The Kimberly-Clark
facility does not require a commitment fee, and interest will be at a rate equal
to the  then-current  rate of interest  under the bank credit  facility plus 100
basis points.  There were no outstanding  borrowings  under these  agreements at
December  31,  1998,  except  for  letters  of  credit  totaling   approximately
$16,150,000 that reduce the amount of available credit.

In  August  1997  the  Company  purchased  a  headquarters  building,  which  it
previously leased. As part of the transaction, the Company assumed $3,487,000 of
long-term  debt.  The mortgage note has an interest rate of 8.25% and is payable
in monthly  installments through April 2011. Future maturities of long-term debt
for the next five years are as follows (in thousands):

Year ended December 31,
1999................................. $127
2000.................................  138
2001.................................  182
2002.................................  214
2003.................................  233

The fair value of the Company's borrowing under this agreement  approximates its
carrying value as of December 31, 1998.

Note 6. Retirement and Benefit Plans
The Company  adopted SFAS No. 132,  "Employer's  Disclosures  about Pensions and
Other  Postretirement  Benefits,"  in 1998.  SFAS  No.  132  revises  disclosure
requirements for such pension and  postretirement  benefit plans to, among other
things,  standardize certain disclosures and eliminate certain other disclosures
no longer  deemed  useful.  SFAS No.  132 does not  change  the  measurement  or
recognition criteria for such plans.

Defined Benefit Plans
Midwest  Express has two defined  benefit  pension  plans which,  in total cover
substantially  all of its  employees.  The  benefits  for these  plans are based
primarily on years of service and employee compensation.  It is Midwest Express'
policy to  annually  fund at least the minimum  contribution  as required by the
Employee  Retirement  Income  Security Act (ERISA) of 1974.


                                       31
<PAGE>

The following table sets forth the funded status of the plans at December 31 (in
thousands):

                                                           Midwest Express
                                                            Pension Plan
                                                           1998        1997 
Change in Benefit Obligation
Net benefit obligation at beginning of year............ $18,552     $11,881
Service cost...........................................   2,456       1,656
Interest cost..........................................   1,676       1,132
Actuarial loss.........................................   4,953       3,900
Gross benefits paid....................................     (23)        (17)
                                                        -------     -------
Net benefit obligation at end of year.................. $27,614     $18,552
                                                        =======     =======

Change in Plan Assets
Fair value of assets at beginning of year.............. $12,331     $ 7,449
Actual return on plan assets...........................   1,705       1,516
Employer contributions.................................   3,726       3,383
Gross benefits paid....................................     (23)        (17)
                                                        -------     -------
Fair value of plan assets at end of year............... $17,739     $12,331
                                                        =======     =======

Funded status at end of year........................... $(9,875)    $(6,221)
Unrecognized net actuarial loss........................   7,900       3,856
Unrecognized prior service cost........................     (28)        (31)
Unrecognized net transition obligation.................      86         109
                                                        -------     -------
Accrued benefit liability.............................. $(1,917)    $(2,287)
                                                        =======     =======

Amounts  recognized in the balance sheet consist of an accrued benefit liability
of $1,917,000 and $2,287,000 on December 31, 1998 and 1997, respectively.

Weighted-average assumptions as of December 31
Discount rate..........................................   7.00%       7.25%
Expected return on plan assets.........................  10.00%      10.00%
Rate of compensation increase..........................   4.25%       4.25%

                                                           Supplemental
                                                           Pension Plan
                                                          1998        1997 
Change in Benefit Obligation
Net benefit obligation at beginning of year............ $ 1,152     $   511
Service cost...........................................      52          45
Interest cost..........................................      81          73
Actuarial loss.........................................       5         523
                                                        -------     -------
Net benefit obligation at end of year.................. $ 1,290     $ 1,152
                                                        =======     =======

Funded status at end of year........................... $(1,290)    $(1,152)
Unrecognized net actuarial loss........................     641         672
Unrecognized prior service cost........................      50          55
Unrecognized net transition obligation.................      15          19
                                                        -------     -------
Accrued benefit liability.............................. $  (584)    $  (406)
                                                        =======     =======

Amounts recognized in the balance sheet consist of:
  Accrued benefit liability............................ $  (584)    $  (442)
  Intangible asset.....................................       _          36
                                                        -------     -------
Net amount recognized at end of year................... $  (584)    $  (406)
                                                        =======     =======

Weighted-average assumptions as of December 31
Discount rate..........................................   7.00%       7.25%
Rate of compensation increase..........................   4.25%       4.25%

The net periodic  benefit cost of defined  benefit  pension  plans for the years
ending December 31 includes the following (in thousands):

                                                           Midwest Express
                                                            Pension Plan  
Components of Net Periodic Benefit Cost                   1998     1997    1996
Service cost........................................... $2,456   $1,656  $1,488
Interest cost..........................................  1,676    1,132     915
Expected return on assets.............................. (1,175)    (994)   (664)
Amortization of:
  Transition obligation................................     23       23      23
  Prior service cost...................................     (3)      (2)     (2)
  Actuarial loss.......................................    379       37      87
                                                        ------   ------  ------
Total net periodic benefit cost........................ $3,356   $1,852  $1,847
                                                        ======   ======  ======

                                                             Supplemental
                                                             Pension Plan
Components of Net Periodic Benefit Cost                   1998     1997    1996
Service cost........................................... $   52   $   45  $   19
Interest cost..........................................     81       73      38
Amortization of:
  Transition obligation................................      4        4       4
  Prior service cost...................................      5        5       5
  Actuarial loss.......................................     36       30      12
                                                        ------   ------  ------
Total net periodic benefit cost........................ $  178   $  157  $   78
                                                        ======   ======  ======

Postretirement Health Care and Life Insurance Benefits
Midwest  Express allows retirees to participate in unfunded health care and life
insurance  benefit  plans.  Benefits  are based on years of  service  and age at
retirement. The plans are principally  noncontributory for current retirees, and
are contributory for most future retirees.

The  following  table  sets  forth the  status of the plans at  December  31 (in
thousands):

                                                          1998        1997 
Change in Benefit Obligation
Net benefit obligation at beginning of year............ $ 2,151     $ 1,195
Service cost...........................................     270         211
Interest cost..........................................     176         141
Actuarial loss.........................................     128         604
                                                        -------     -------
Net benefit obligation at end of year.................. $ 2,725     $ 2,151
                                                        =======     =======

Funded status at end of year........................... $(2,725)    $(2,151)
Unrecognized net actuarial loss........................     380         254
                                                        -------     -------
Accrued benefit liability.............................. $(2,345)    $(1,897)
                                                        =======     =======

Amounts recognized in the balance sheet consist of:
  Accrued benefit liability............................ $(2,725)    $(2,151)
  Accumulated other comprehensive income...............     380         254
                                                        -------     -------
Net amount recognized at end of year................... $(2,345)    $(1,897)
                                                        =======     =======

Weighted-average assumptions as of December 31
Discount rate..........................................   7.00%       7.25%
Rate of compensation increase..........................   4.25%       4.25%

The net periodic benefit cost of  postretirement  health care and life insurance
benefits for the years ending December 31 includes the following (in thousands):

Components of Net Periodic Benefit Cost                  1998     1997     1996
Service cost...........................................  $270     $211     $180
Interest cost..........................................   176      141       89
Actuarial loss (gain)..................................     2        -       (6)
                                                         ----     ----     ----
Total net periodic benefit cost........................  $448     $352     $263
                                                         ====     ====     ====

                                       32
<PAGE>

The  assumed  health  care cost  trend  rate was  approximately  10%,  declining
annually to a rate of 6% by the year 2005,  and remaining  level  thereafter.  A
change of one percentage point would not be significant.

Defined Contribution Plans
The Company has two voluntary  defined  contribution  investment  plans covering
substantially all employees. Under these plans, the Company matches a portion of
employee  contributions.  Amounts  expensed and  reflected  in the  accompanying
income  statements were $1,471,000,  $1,498,000 and $1,175,000 in 1998, 1997 and
1996, respectively.

Profit Sharing Plans
The Company has three profit sharing plans:  an employee profit sharing plan for
substantially all employees of Midwest Express,  an employee profit sharing plan
for  substantially  all employees of Astral and an Annual Incentive Plan for key
management employees.  Company contributions for all plans are based entirely on
achieving  specified levels of profitability.  The Company expensed  $9,984,000,
$4,938,000  and  $5,370,000  under  these  plans  during  1998,  1997 and  1996,
respectively.

Note 7. Net Income Per Share
Effective in 1997, the Company adopted SFAS No.128,  "Earnings Per Share," which
established  new  standards  for  the  calculation  of  net  income  per  share.
Reconciliations  of the numerator and  denominator  of the basic and diluted per
share  computations  are summarized as follows (in  thousands,  except per share
amounts):

                                                       1998      1997      1996
Net Income Per Share - Basic:
 Net income (numerator)............................. $35,869   $24,940   $21,750
 Weighted average shares outstanding
  (denominator).....................................  14,102    14,197    14,390
                                                     -------   -------   -------
 Net income per share - basic....................... $  2.54   $  1.76   $  1.51
                                                     =======   =======   =======
Net Income Per Share - Diluted:
 Net income (numerator)............................. $35,869   $24,940   $21,750
 Weighted average shares outstanding
  (denominator).....................................  14,102    14,197    14,390
 Effect of dilutive securities:
 Stock options......................................     196       113        76
 Shares issuable under the 1995 Stock Plan
  for Outside Directors.............................       8         5         2
                                                     -------   -------   -------
 Weighted average shares outstanding assuming
  dilution (denominator)............................  14,306    14,315    14,468
                                                     -------   -------   -------
 Net income per share - diluted..................... $  2.51   $  1.74   $  1.50
                                                     =======   =======   =======
Note 8. Shareholders' Equity
In 1996 the Board of  Directors  adopted a  shareholder  rights  plan and made a
dividend  distribution  of one Preferred  Share Purchase Right ("Right") on each
outstanding  share of the  Company's  common  stock.  As a result of the 3-for-2
stock  splits  effected  in May 1997  and  1998,  four-ninths  of a Right is now
associated with each share of common stock. The Rights are exercisable only if a
person or entity  acquires  15% or more of the  common  stock of the  Company or
announces  a  tender  offer  for 15% or more of the  common  stock.  Each  Right
initially  entitles its holders to buy one one-hundredth  share of the Company's
Series A Preferred Stock at an exercise price of $100, subject to adjustment. If
a person or entity acquires 15% or more of the Company's common stock, then each
Right will entitle its holder to purchase,  at the Right's then-current exercise
price,  Company  common stock valued at twice the exercise  price.  The Board of
Directors is also  authorized to reduce the 15% thresholds  referred to above to
not less than 10%. The Rights expire in 2006.

Under the Company's  1995 Stock Option Plan, the  Compensation  Committee of the
Board of Directors may grant options,  at its discretion,  to purchase shares of
common stock to certain  employees.  An aggregate of 1,548,900  shares of common
stock is reserved for issuance under the Plan.  Under the Plan,  options granted
have an exercise  price equal to 100% of the fair market value of the underlying
stock at the date of grant.  Granted  options become  exercisable  30% after the
first  year,  30% after the second  year and the  remaining  40% after the third
year, unless otherwise determined, and have a maximum term of 10 years.

Transactions  with respect to the Plan have been  adjusted to reflect the effect
of the stock splits and are summarized as follows:

                                                               Weighted Average
                                                      Shares   Exercise Price
Options outstanding at January 1, 1996............   292,500        $  8.00
   Granted........................................    22,500          14.00
   Exercised......................................   (10,125)          8.00
   Forfeited......................................   (38,250)          8.00
                                                     -------        -------
Options outstanding at December 31, 1996..........   266,625        $  8.51
   Granted........................................   285,750          16.04
   Exercised......................................    (6,750)          8.00
   Forfeited......................................    (4,500)         16.11
                                                     -------        -------
Options outstanding at December 31, 1997..........   541,125        $ 12.43
   Granted........................................   285,750          30.50
   Exercised......................................   (19,000)         11.90
   Forfeited......................................   (45,900)         24.41
                                                     -------        -------
Options outstanding at December 31, 1998..........   761,975        $ 18.49
                                                     =======        =======
Options exercisable at December 31, 1998..........   316,250        $ 10.17
                                                     =======        =======

Options  exercisable  at December  31, 1998  included  227,500  options  with an
exercise price of $8.00, 13,500 options with an exercise price of $14.00,  6,750
options  with an exercise  price of $15.14 and 68,500  options  with an exercise
price of $16.11. The following table summarizes information concerning currently
outstanding options:

                                               Weighted
                                               Average          Weighted
                                               Remaining        Average
                                   Number     Contractual       Exercise
Range of Exercise Prices        Outstanding      Life           Price
$8.00..........................   227,500      6.8 years         $ 8.00
$14.00 - $16.11................   275,725      8.1 years          15.86
$30.52 - $30.88................   258,750      9.6 years          30.53
                                  -------      ---------         ------
Options outstanding at
December 31, 1998..............   761,975      8.2 years         $18.49
                                  =======      =========         ======

                                       33
<PAGE>

In 1996  the  Company  adopted  the  disclosure  requirements  of SFAS  No.  123
"Accounting for Stock-Based Compensation" (SFAS 123). 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 in the financial statements
for its stock option plan. Had compensation  cost for the Company's stock option
plan been determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS 123, the Company's net income and
net income per share would have been reduced to the pro forma amounts  indicated
below (in thousands, except per share amounts):

                                       1998          1997         1996
Net income:
    As reported..................  $  35,869     $  24,940     $ 21,750
    Pro forma....................  $  34,514     $  24,461     $ 21,535
Net income per share - basic:
    As reported..................  $    2.54     $    1.76     $   1.51
    Pro forma....................  $    2.45     $    1.72     $   1.49
Net income per share - diluted:
    As reported..................  $    2.51     $    1.74     $   1.50
    Pro forma....................  $    2.41     $    1.71     $   1.49

For  purposes of these  disclosures,  the fair value of each option  granted was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:

                                       1998          1997         1996
Expected volatility..............      31.6%         27.4%        42.2%
Risk-free interest rate..........       4.5%          5.4%         5.3%
Forfeiture rate..................       5.0%          5.0%         4.0%
Dividend rate....................       0.0%          0.0%         0.0%
Expected life in years...........         5             5            5

Note 9. Income Taxes
The provision for income taxes for the years ended  December 31, 1998,  1997 and
1996 consisted of the following (in thousands):

                                        1998      1997       1996
Currently payable:
Federal............................  $ 17,611  $ 11,314   $ 14,780
State..............................     3,275     2,084      2,620
                                     --------  --------   --------
                                       20,886    13,398     17,400
                                     --------  --------   --------
Deferred (Credit):
Federal............................       246     1,169     (3,991)
State..............................        26       125         73
                                     --------  --------   --------
                                          272     1,294     (3,918)
                                     --------  --------   --------
Total provision for income taxes...  $ 21,158  $ 14,692   $ 13,482
                                     ========  ========   ========

A reconciliation  of income taxes at the U.S. federal  statutory tax rate to the
effective tax rate follows:


                                         1998     1997     1996
Tax at statutory U.S. tax rates....      35.0%    35.0%    35.0%
State income taxes,
  net of federal benefit...........       3.8      3.8      3.8
Other, net.........................      (1.7)    (1.7)    (0.5)
                                         ----     ----     ----
Provision for income taxes.........      37.1%    37.1%    38.3%
                                         ====     ====     ====

Temporary  differences that gave rise to the deferred tax assets and liabilities
comprise the following (in thousands):

                                                          1998       1997
Current deferred income tax assets attributable to:
Accrued liabilities................................... $  2,550    $ 1,742
Maintenance expense liability.........................    2,633      2,633
Other.................................................      338        280
                                                       --------    -------
Net current deferred tax assets....................... $  5,521    $ 4,655
                                                       ========    =======
Noncurrent deferred income tax assets (liabilities)
  attributable to:
Excess of tax over book depreciation.................. $(20,467)   $(18,997)
Maintenance expense liability.........................    3,692       2,943
Pension liability.....................................    1,794       1,831
Other.................................................    1,334       1,714
                                                       --------    --------
Net noncurrent deferred tax liabilities............... $(13,647)   $(12,509)
                                                       ========    ========

In connection  with the Company's  initial public offering in 1995, the Company,
Midwest  Express,  Astral and  Kimberly-Clark  entered into a Tax Allocation and
Separation  Agreement  (`'Tax  Agreement").  Pursuant to the Tax Agreement,  the
Company is treated for tax purposes as if it purchased  all of Midwest  Express'
assets at the time of the  Offering,  and as a result,  the tax bases of Midwest
Express' assets were increased to the deemed  purchase price of the assets.  The
tax on the  amount  of the  gain  on the  deemed  asset  purchase  was  paid  by
Kimberly-Clark.  This additional basis is expected to result in increased income
tax deductions and,  accordingly,  may reduce income taxes otherwise  payable by
the  Company.   Pursuant  to  the  Tax  Agreement,   the  Company  will  pay  to
Kimberly-Clark  the amount of the tax benefit  associated  with this  additional
basis  (retaining  10% of the tax  benefit),  as realized on a quarterly  basis,
calculated by comparing the Company's  actual taxes to the taxes that would have
been owed had the  increase  in basis  not  occurred.  In the  event of  certain
business  combinations or other acquisitions  involving the Company, tax benefit
amounts  thereafter  will not take into account,  under  certain  circumstances,
income,   losses,   credits  or  carryovers  of  businesses   other  than  those
historically  conducted by Midwest  Express or the  Company.  Except for the 10%
benefit,  the  effect of the Tax  Agreement  is to put the  Company  in the same
financial  position  it would have been in had there been no increase in the tax
bases of Midwest  Express'  assets.  The effect of the  retained  10% benefit is
reflected in the financial  statements as a reduction in the Company's provision
for income taxes.

Note 10. Commitments and Contingencies
At  December  31,  1998,  the  Company had  purchase  commitments  approximating
$12,678,000 for capital expenditures.

In February 1997 Midwest  Express  committed to pay $9,250,000 over 15 years for
the  naming  rights  to  the  Midwest  Express  Center,  an  800,000-square-foot
convention center in Milwaukee that opened in July 1998.

During 1997 the Company executed  definitive purchase documents to acquire eight
McDonnell  Douglas MD-80 series  aircraft.  The Company took delivery of four of
the aircraft in 1998 and will take  delivery of the four  remaining  aircraft in
1999.  The  Company  expects  that the cost of this  entire  project,  including
aircraft   refurbishment,   modification  and  support  equipment,   will  total
approximately $120.0 million through the year 2000, of which approximately $63.6
million has been expended through December 31, 1998.

                                       34
<PAGE>

During 1998 the  Company  placed  firm  orders on five new  Fairchild  Aerospace
328JET  aircraft,  with options for 10 additional  aircraft,  exercisable  after
2001. The Company will take delivery of all five firm-ordered  aircraft in 1999.
The  Company  expects  that the cost of these  first  five  aircraft,  including
purchase price and support equipment, will total approximately $55.0 million and
will be financed as deliveries take place.

The Company is party to routine  litigation  incidental to its business.  In the
opinion of  management,  the final  disposition  of these  matters  will have no
material adverse effect on the consolidated financial statements.

Note 11. Segment Reporting
The Company adopted SFAS No. 131,  "Disclosures  about Segments of an Enterprise
and Related Information," in 1998. Midwest Express and Astral, doing business as
Skyway  Airlines,  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  and
marketing strategies. No single customer accounted for more than 10% of revenue.
The  accounting  policies  of the  reportable  segments  are the  same as  those
described in Note 2.

Midwest Express offers nonstop jet service to 27 major  destinations  throughout
North America by offering  single-class,  premium  service at competitive  coach
fares. At December 31, 1998,  Midwest Express  operated a fleet of 27 aircraft _
24 DC-9s and three MD-80s.

Skyway  Airlines offers  point-to-point  service in select markets and increases
traffic for Midwest Express by providing  passengers with connecting  service to
jet  flights.  At December  31,  1998,  Skyway  Airlines  operated a fleet of 15
Beechcraft 1900D turboprop aircraft.

Revenue for passengers who travel on both carriers within a single  itinerary is
allocated to each entity based on a formula that is dependent upon the fare type
paid by the passenger.  There were 88,154, 76,508 and 81,561 passengers in 1998,
1997 and 1996, respectively, under the aforementioned pricing agreement.

Although Skyway Airlines is independent from an operational perspective, Midwest
Express performs a number of services for Astral including,  but not limited to,
coordinating  aircraft  scheduling,  pricing,  reservations,  yield  management,
advertising,  fuel  procurement  and  revenue  accounting.  Astral is  charged a
marketing  service fee for these services,  approximating 10% of the revenue for
passengers who travel  exclusively on Astral and  approximately $2 per passenger
for passengers who connect between the carriers.  These service charges comprise
a  majority  of  the   intercompany   revenue   and  expense   between  the  two
segments.

Midwest  Express  also  performs  treasury   functions  for  Astral,   including
controlling cash centrally. Astral earns interest income at market rates for any
cash managed by Midwest Express. This interest income comprises the intercompany
interest income and expense shown as eliminations in the subsequent information.
The total asset elimination  consists primarily of the intercompany  payable and
receivable balances.

Financial information on the two operating segments, Midwest Express and Astral,
follows (in thousands):

<TABLE>
<CAPTION>

                                      Midwest
1998                                  Express     Astral      Elimination       Consolidated
<S>                                  <C>         <C>           <C>               <C>     
Operating Revenues................   $351,357    $41,478       $ (3,691)         $388,874
Operating Income..................     52,390      3,265              -            55,655
Depreciation and
  Amortization Expense............      9,334        687              -            10,021
Interest Income...................      1,727        587           (587)            1,727
Interest Expense..................        867          -           (587)              280
Income Before Income Taxes........     53,175      3,852              -            57,027
Provision for Income Taxes........     19,714      1,444              -            21,158

Total Assets......................    213,119     21,319        (13,961)          220,477
Capital Expenditures..............   $ 73,830    $   502       $      -          $ 74,332

1997
Operating Revenues................   $309,912    $38,484       $ (3,839)         $344,557
Operating Income..................     37,793        677              -            38,470
Depreciation and 
  Amortization Expense............      8,056        589              -             8,645
Interest Income...................      1,419        462           (462)            1,419
Interest Expense..................        557          -           (462)               95
Income Before Income Taxes........     38,459      1,137              -            39,632
Provision for Income Taxes........     14,266        426              -            14,692

Total Assets......................    160,027     17,962        (11,241)          166,748
Capital Expenditures..............   $ 26,052    $ 1,565       $      -          $ 27,617

1996
Operating Revenues................   $270,599    $37,814       $ (3,667)         $304,746
Operating Income..................     31,228      3,131              -            34,359
Depreciation and
  Amortization Expense............      7,141        522              -             7,663
Interest Income...................      1,165        471           (552)            1,084
Interest Expense..................        471         81           (552)                -
Income Before Income Taxes........     31,710      3,522              -            35,232
Provision for Income Taxes........     12,169      1,313              -            13,482

Total Assets......................    123,660     17,373        (11,898)          129,135
Capital Expenditures..............   $ 24,380    $ 1,227       $      -          $ 25,607

</TABLE>


                                       35
<PAGE>

                         MIDWEST EXPRESS HOLDINGS, INC.
                    Quarterly Financial Summary (Unaudited)
                     (In Thousands, Except Per Share Data)

                                             Three Months Ended
--------------------------------------------------------------------------------
1998                           March 31    June 30   September 30   December 31 
--------------------------------------------------------------------------------
Operating revenues              $88,412   $100,097     $103,823      $96,542
Operating expenses               79,009     83,266       86,907       84,037
Operating income                  9,403     16,831       16,916       12,505
Income before income taxes        9,728     17,217       17,242       12,840
Income taxes                      3,648      6,456        6,447        4,607
Net income                        6,080     10,761       10,795        8,233
Net income per share - basic       0.43       0.76         0.77         0.58
Net income per share - diluted     0.43       0.75         0.75         0.58

                                             Three Months Ended
--------------------------------------------------------------------------------
1997                           March 31    June 30   September 30   December 31
--------------------------------------------------------------------------------
Operating revenues              $79,920    $83,344      $89,399      $91,894
Operating expenses               73,447     74,837       77,611       80,192
Operating income                  6,473      8,507       11,788       11,702
Income before income taxes        6,769      8,830       12,003       12,030
Income taxes                      2,538      3,232        4,445        4,477
Net income                        4,231      5,598        7,558        7,553
Net income per share - basic       0.30       0.39         0.53         0.53
Net income per share - diluted     0.29       0.39         0.53         0.53

--------------------------------------------------------------------------------
                            SHAREHOLDER INFORMATION

Headquarters                       Annual Meeting
Midwest Express Holdings, Inc.     The Annual Meeting of Midwest Express
6744 South Howell Avenue           Holdings, Inc. will be held at 10 a.m. on
Oak Creek, Wisconsin               Wednesday, April 28, 1999, at The Midwest
53154-1402                         Express Center, 400 West Wisconsin Avenue,
(414) 570-4000                     Milwaukee.  Shareholders of record on
                                   March 9, 1999, will be mailed an official
                                   notice of the meeting.

Transfer Agent and Registrar       Financial Reports
Firstar Bank Milwaukee, N.A.       Form 10-K (without exhibits) and other 
Corporate Trust Department         reports filed with the Securities and
Milwaukee, Wisconsin               Exchange Commission are available without
                                   charge upon written request from the 
Independent Auditors               Company's Investor Relations department at
Deloitte & Touche LLP              the headquarters address.  Company documents
Milwaukee, Wisconsin               filed electronically with the U.S.
                                   Securities and Exchange Commission (SEC)
                                   can also be found on the SEC's Web site
                                   at www.sec.gov.

                                   Common Stock
                                   Midwest Express Holdings, Inc. (symbol:MEH)
                                   common stock trades on the New York Stock
                                   Exchange.  As of December 31, 1998, there
                                   were 14,464,056 shares of common stock
                                   issued and 772 registered shareholders.

              Following are low and high closing prices per share
                  for the past two years, adjusted to reflect
             3-for-2 stock splits on May 27, 1998 and May 28, 1997.

                                  1998                   1997
        First Quarter    $24 1/4   - 34 43/64   $15 1/16  - 17 7/32
        Second Quarter   $27 37/64 - 36 3/16    $16 1/2   - 21 15/16
        Third Quarter    $26 3/4   - 37 9/16    $15 27/64 - 21 3/8
        Fourth Quarter   $24 1/8   - 32 3/8     $20 1/2   - 26 3/8

  The Company has not paid a cash dividend since its initial public offering.

                                       36