# FORM 10-K
                                                     UNITED STATES
                                          SECURITIES AND EXCHANGE COMMISSION
                                                WASHINGTON, D.C. 20549

|[X] | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For
the fiscal year ended December 31, 2004
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|[   ] | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For
the transition period from  _______________________ to  _______________________
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|                                                                                                
|------------------------------------------------------------------------------------------------
|6744 South Howell Avenue
                                             Oak Creek, Wisconsin 53154
|(Address of Principal executive offices)(Zip code)                                              
|414-570-4000                                                                                    
|(Registrant's telephone number, including area code)                                            

|Securities
registered pursuant to Section 12(b) of the Act:
|-----------------------------------------------------------

|Common Stock, $.01 par value   
Preferred Stock Purchase Rights | New York Stock Exchange
New York Stock Exchange
|--------------------------------------------------------------- | -----------------------------------------------
|(Title of Class)                                                | (Names of exchange on which registered)        

|                                                            |                 
|----------------------------------------------------------- | ----------------
|Securities registered pursuant to Section 12(g) of the Act: | None            
|                                                            | (Title of class)

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

Yes  X      No

Indicate by checkmark if disclosure
of delinquent  filers  pursuant to Item 405 of Regulation S-K is not contained
     herein,  and will not be contained,  to the best of  registrant's  knowledge,  in
definitive  proxy or information      statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [x]

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

Yes  X      No

The  aggregate  market value of the
Common Stock held by  non-affiliates  of the  registrant as of January 31, 2005 was
approximately  $72,853,328.  For  purposes of this  calculation  only,  (i) shares of
Common Stock are deemed to have a market value of $4.17 per share,  the closing  price of
the Common Stock as reported on the New York Stock  Exchange on June  30,  2004,  and
 (ii)  each of the  executive  officers,  directors  and  persons  holding  more  than
10% of the outstanding Common Stock as of January 31, 2005 is deemed to be an affiliate.

As of January 31, 2005, there were
17,470,822 shares of Common Stock outstanding.

# DOCUMENTS INCORPORATED
BY REFERENCE

Portions of the definitive  Proxy
 Statement for  registrant's  Annual Meeting of  Shareholders to be held on April 20,
2005 are incorporated by reference in Part III Items 10, 11, 12, 13 and 14.

---

# MIDWEST AIR GROUP,
INC.FORM 10-KFor the fiscal year
ended December 31, 2004

# TABLE OF CONTENTS

|              |                                                                                       | Page
|------------- | ------------------------------------------------------------------------------------- | ----
|              | PART I                                                                               
|Item 1        | Business                                                                              | 2   
|Item 2        | Properties                                                                            | 15  
|Item 3        | Legal Proceedings                                                                     | 17  
|Item 4        | Submission of Matters to a Vote of Security Holders                                   | 17  
|              | PART II                                                                              
|Item 5        | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer         | 18  
|              | Purchases of Equity Securities                                                       
|Item 6        | Selected Financial Data                                                               | 19  
|Item 7        | Management's Discussion and Analysis of Financial Condition and Results of Operations | 21  
|Item 7A       | Quantitative and Qualitative Disclosures about Market Risk                            | 33  
|Item 8        | Financial Statements and Supplementary Data                                           | 33  
|Item 9        | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  | 62  
|Item 9a       | Controls and Procedures                                                               | 62  
|Item 9B       | Other Information                                                                     | 63  
|              | PART III                                                                             
|Item 10       | Directors and Executive Officers of the Registrant                                    | 64  
|Item 11       | Executive Compensation                                                                | 64  
|Item 12       | Security Ownership of Certain Beneficial Owners and Management and Related            | 64  
|              | Stockholder Matters                                                                  
|Item 13       | Certain Relationships and Related Transactions                                        | 65  
|Item 14       | Principal Accountant Fees and Services                                                | 65  
|              | PART IV                                                                              
|Item 15       | Exhibits and Financial Statement Schedules                                            | 66  
|SIGNATURES    | 67                                                                                   
|EXHIBIT INDEX | 68                                                                                   

---

# PART I

# Forward-Looking
Statements

This Annual Report on Form
10-K, particularly the Pending Developments section, contains
forward-looking statements that may state Midwest Air Group, Inc.s (the
Company) or managements intentions, hopes, beliefs, expectations or
predictions for the future. In the following discussion and elsewhere in the report,
statements containing words such as expect, anticipate,
believe, estimate, goal, objective or
similar words are intended to identify forward-looking statements. It is important to note
that the Companys actual results could differ materially from projected results due
to the risk factors described in the Risk Factors section of Item 1 of this Annual
Report on Form 10-K and the following:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

| | resolution
of matters  relating to  litigation  filed by Dornier  Aviation  (North  America) Inc.
 Liquidating Trust.
|- | ---------------------------------------------------------------------------------------------------------------------

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

1

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# ITEM 1. BUSINESS

# Background

The Company was reincorporated under
the laws of the State of Wisconsin in 1996. It is a holding company and its principal
subsidiary is Midwest Airlines, Inc., (Midwest Airlines). Midwest Airlines
currently operates a passenger jet airline that serves major destinations throughout the
United States from Milwaukee, Wisconsin, and Kansas City, Missouri.

Midwest Airlines evolved out of
Kimberly-Clark Corporations desire to provide a convenient and cost-effective way to
meet its internal transportation needs. Kimberly-Clark began daily, nonstop aircraft
shuttle service in October 1982 for employees traveling between offices in two cities. Key
management personnel from Kimberly-Clark who successfully operated the shuttle service
became the senior management of Midwest Airlines.

Midwest Airlines began commercial
operations in June 1984 with two DC-9-10 aircraft, serving three destinations from
Milwaukees General Mitchell International Airport. Milwaukee, as Midwest
Airlines original base of operations, is the main focus of its route structure.
Midwest Airlines established Kansas City as an additional base of operations in September
2000.

Skyway Airlines, Inc., doing business
as Midwest Connect (Midwest Connect), is a wholly owned subsidiary of Midwest
Airlines, and serves as the regional airline for the Company. Midwest Connect began
operations in early 1994 by taking over routes that Mesa Airlines, Inc. (Mesa)
had operated as a commuter feed system under a marketing agreement between Mesa and
Midwest Airlines. Under the agreement, Mesa operated the system from 1989 to 1994 as
Skyway Airlines, using Midwest Airlines airline code.

On September 27, 1995, the stock of
Midwest Airlines was transferred to the Company in connection with the initial public
offering (Offering) by Kimberly-Clark of shares of common stock of the
Company. Following the Offering, Kimberly-Clark retained 20% of the shares of outstanding
common stock of the Company, which it subsequently sold in a secondary public offering
consummated on May 23, 1996.

Midwest Airlines and Midwest Connect
constitute the Companys reportable segments. These reportable segments are strategic
units that are managed independently because they provide different services, with
different cost structures and marketing strategies. Additional detail on segment reporting
is included in Note 13 of the Notes to Consolidated Financial Statements contained in this
Annual Report on Form 10-K.

The Company currently has three
principal product offerings: Midwest Airlines Signature Service, Midwest Airlines Saver
Service and Midwest Connect regional service. Midwest Airlines Signature Service, which is
Midwest Airlines traditional product, is a single-class, premium-service passenger
jet airline that caters to business travelers and, as of December 31, 2004, served 14
major cities in the United States from bases of operations in Milwaukee and Kansas City.
In August 2003, the Company introduced low-fare Midwest Airlines Saver Service in
high-volume, leisure-oriented markets from Milwaukee. As of December 31, 2004, Saver
Service operated to seven cities. Midwest Connect builds feeder traffic and provides
regional scheduled passenger service to cities primarily in the Midwest. The
Companys operating subsidiaries also provide aircraft charter services, transport
air freight and mail, and provide other airline services.

# Corporate Structure

The Company and Midwest Airlines have
their principal executive offices in Oak Creek, Wisconsin. Both entities are Wisconsin
corporations. As described above, Midwest Airlines has one operating airline subsidiary,
Midwest Connect, a Delaware corporation. In addition to Midwest Connect, Midwest Airlines
has the following subsidiaries:

2

---

| | Midwest
Express Services  Kansas City, Inc., a Missouri corporation, was established as a
profit center to better track revenues and costs generated at the Kansas City station.
Revenue is generated from aircraft turn costs charged to Midwest Airlines and Midwest
Connect, and from airport ground handling contracts for other airlines in Kansas City.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Midwest
Express Services  Omaha, Inc., a Nebraska corporation, was established as a profit
center to better track revenues and costs generated at the Omaha station. Revenue is
generated from aircraft turn costs charged to Midwest Airlines and Midwest Connect, and
from aircraft ground handling and freight handling contracts for other airlines in Omaha.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | YX
Properties, LLC, is a wholly owned subsidiary of Midwest Express Services  Omaha,
Inc. This Nebraska limited liability company owns all of the intellectual and intangible
property of Midwest Airlines and Midwest Connect, such as airport slots, trademarks, and
certain proprietary training material and copyrights. YX Properties licenses this
intellectual and intangible property to Midwest Airlines and Midwest Connect. These
airport slots, trademarks, copyrights and other intellectual property rights are
important to the business, but no single airport slot, trademark, copyright or other
intellectual property right is material to the business as a whole.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Route Structure and
Scheduling

Midwest Airlines
OperationsMidwest Airlines currently has two
bases of operations  Milwaukee and Kansas City. As of December 31, 2004, Midwest
Airlines served 23 cities and was the largest carrier in Milwaukee, as measured by
passenger enplanement data provided by the airport authority for 2004. Midwest Airlines
provides nonstop service to most of its destinations from Milwaukee. Twelve other jet
airlines serve Milwaukees airport. As of December 31, 2004, Midwest Airlines
provided nonstop service from Kansas City to eight cities, and passengers in Kansas City
can travel to most other cities throughout the route systems of Midwest Airlines and
Midwest Connect via Milwaukee. Ten other jet airlines serve Kansas Citys airport.

Midwest Connect
OperationsAlthough Midwest Connects
operation is independent from Midwest Airlines  including separate pilot, flight
attendant, aircraft maintenance and customer service personnel  Midwest Airlines
coordinates Midwest Connects routes and schedules to complement Midwest Airlines
service by providing passengers on short-haul, low-density routes the ability to connect
to Midwest Airlines flights in Milwaukee without switching carrier systems. To enhance
aircraft utilization and profitability, Midwest Connect also seeks to identify short-haul,
low-density, point-to-point routes where there is likely to be consistent demand for air
service even though there is no Milwaukee connection. As of December 31, 2004, Midwest
Connect offered flights to 29 cities.

Codesharing AgreementsIn 2003, Midwest Airlines continued a
one-year renewable codeshare agreement with American Eagle that was originally established
in 1998. Under the agreement, Midwest Airlines provided passengers with jet service to
Boston, Dallas/Ft. Worth and Los Angeles, and American Eagle provided passengers with
connecting service from those cities to select destinations throughout its system. In
February 2004, the codeshare agreement with American Eagle was terminated. The Company
believes that the termination of this agreement has not had a material impact on the
Companys results of operations.

In 2004, Midwest Airlines continued a
five-year codeshare agreement established in March 2001 with Air Midwest, Inc., a wholly
owned subsidiary of Mesa Air Group, to provide passengers connecting service between
Kansas City and select Midwestern cities. As of December 31, 2004, Midwest Airlines
provided passengers with jet service to Kansas City, and Air Midwest provided passengers
with connecting service from Kansas City to eight Midwestern cities. Both the Midwest
Airlines and Air Midwest segments are designated in computer reservation systems with
Midwest Airlines code.

3

---

# Business Environment

The airline industry has undergone
significant change in recent years. The stagnant economy and the events of September 11,
2001 began a decline in travel demand, primarily by business travelers who traditionally
have paid higher airline fares, that severely impacted the industry. Since then, higher
fuel prices, the continuing turmoil in the Middle East, and increased security measures
have continued to increase costs. Combined with excess capacity in the industry and
significantly increased competition from legacy and low-fare carriers, these factors have
resulted in substantial declines in passenger revenue, higher costs and substantial losses
at many airlines, including the Company.

Although the Company was profitable
for 14 consecutive years through 2000, the fundamental changes in the industry caused
significant financial losses and have required the Company to implement broad changes to
its operations, aimed at returning the Company to profitability by improving revenue and
aggressively reducing costs. These changes are discussed more fully in
Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in this Annual Report on Form 10-K.

# Aircraft Fuel

Because fuel costs constitute a
significant portion of the Companys operating costs (approximately 24% and 20% for
2004 and 2003, respectively), significant changes in fuel costs can materially affect the
Companys operating results. Fuel prices continue to be susceptible to political
events and other factors that affect the supply of fuel, and the Company cannot predict
the effect of changes in near- or long-term fuel prices. In the event of a fuel supply
shortage resulting from a disruption of oil imports or otherwise, higher fuel prices or
curtailment of scheduled service could result. The Company has periodically entered into
short-term option cap agreements in an attempt to reduce its exposure to jet fuel price
fluctuations and currently has collars in place for a portion of the fuel usage for all of
2005. During 2004, $0.3 million was expensed because jet fuel prices have fallen outside
the collar and $0.8 million recorded as a potential liability for future fuel prices that
may fall outside of the collar. The collars for first quarter 2005 cover approximately 25%
of the total estimated fuel consumption with an average floor price of $1.37 per gallon
and average ceiling price of $1.60 per gallon, which includes into-plane costs. There are
collars in place that cover 18.0%, 13.6% and 9.2% of the estimated fuel consumption for
second, third and fourth quarters of 2005, respectively as of January 31, 2004.

# Customer Service

OverallMidwest Airlines has consistently
been recognized as the best U.S. airline by travel publications and frequent flyer
surveys, including Travel+Leisure, Condé Nast Traveler, Global Traveler
and the Zagat Airline Survey.Midwest Airlines caters primarily to business
travelers and discerning leisure travelers by providing a travel experience that includes
tangible amenities and a higher level of customer service at competitive fares. Tangible
amenities include extra legroom for added comfort and baked-onboard chocolate chip cookies
on many flights, while passenger-pleasing service is provided by Midwest Airlines
employees at each phase of the travel experience.

4

---

Saver Service and
Signature ServiceMidwest Airlines offers two products
to meet the varying needs of its customers:

| | Midwest
Airlines Saver Service provides nonstop, low-fare flights in high-demand leisure markets.
As of December 31, 2004, Saver flights flew between Milwaukee and Las Vegas, Los Angeles,
Orlando, Phoenix, Ft. Lauderdale, Ft. Myers and Tampa. The latter three cities are served
seasonally.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Midwest
Airlines Signature Service is featured on all other Midwest routes. Seating on Signature
flights is altered from the standard 2-by-3 coach seating to a roomier 2-by-2
configuration, with wide leather seats for additional passenger comfort. The Boeing 717
aircraft also offer adjustable footrests and head cushions.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Both Saver and Signature flights
provide passengers with extra legroom for added comfort. Pitch (the distance between
seats) averages 33-34", depending on aircraft type  more than the 30 many
airlines offer in coach class. The interior width of seat cushions on Midwest Airlines
aircraft is generally 18 on Saver flights and 21 on Signature flights,
compared with coach seating that is 17-18 wide on many airlines.

Saver Service has enhanced the
Companys competitive position by enabling it to serve a segment of the market that
is growing more rapidly than the business travel market, expand to destinations that have
not been economically viable to serve with the premium product, and serve some existing
destinations more cost efficiently. With Saver Service, the Company has been able to
compete with other low-fare carriers in ways that are different from its Signature
Service. Among other things, the Company competes more clearly on the basis of fare
levels. There is no assurance that it will continue to be able to compete successfully on
these bases.

# Fare Pricing and Revenue
Management

Airlines generally offer a range of
fares that are distinguished by restrictions on use, such as time of day and day of the
week, length of stay, and minimum advance booking period. Midwest Airlines and Midwest
Connect generally offer the same range of fares their competitors offer, although there
are exceptions in particular markets, where Midwest Airlines will discount certain
categories of fares or charge a premium compared with its competitors.

The number of seats an airline offers
in each fare category is also an important factor in pricing. Midwest Airlines monitors
the inventory and pricing of available seats with a computer-assisted revenue management
system. The system enables Midwest Airlines revenue management analysts to examine
Midwest Airlines and Midwest Connects historical demand and increases the
analysts opportunity to establish the optimal allocation of the number of seats made
available for sale at various fares. The analysts then monitor each flight to adjust seat
allocations and actual booking levels, with the objective of maximizing revenues by
optimizing the number of passengers and the fares paid on future flights.

Effective December 2002, the Company
revised its service fee structure to lower costs and boost revenues. The Company began
charging a service fee for paper tickets when electronic tickets are available, increased
lost ticket fees, began charging for unaccompanied minors, and standardized excess and
overweight baggage fees. This structure provides choices and options for customers, and
charges an appropriate amount for specialized services. These fees are either consistent
with or less than those charged by most U.S. carriers.

# Marketing

Travel Agency
Relationships and Ticket SalesIn 2004, Midwest Airlines sold
approximately 52% of its tickets through travel agents (including online agencies),
compared with 51% in 2003. In September 2004, Midwest Airlines relaunched its Web site
 www.midwestairlines.com featuring an updated look and offering an
enhanced fare-shopping tool. In 2004, ticket sales through the Midwest Airlines Web site
contributed 25.1% of the Companys revenue compared with 23.7% in 2003, and continued
to reflect the shift toward this distribution channel.

5

---

The Company maintains its own
reservations call center at its headquarters in Oak Creek, Wisconsin. Like many travel
agencies, the Companys reservations center provides airline information, makes
reservations, and sells tickets for Midwest Airlines and Midwest Connect flights using a
computer reservation system. The Company currently has an agreement to use SABREs
computer reservation system; this agreement is effective through 2009.

Frequent Flyer ProgramThe Company operates a frequent flyer
program, called Midwest Miles (the frequent flyer program), under which
mileage credits are earned by flying on Midwest Airlines, Midwest Connect or other
participating airlines (American Airlines and Frontier Airlines) and by using the services
of participating hotels (Hilton, Hyatt, Loews, Radisson, Raffles, Swissôtel, Wyndham
and others), car rental firms (Avis, Hertz and National), Juniper Bank (issuer of the
Midwest Airlines MasterCard), Midwest Airlines Vacations and other program partners.
Members can redeem frequent flyer program miles for travel on Midwest Airlines or Midwest
Connect, or other participating airlines. In addition to free air travel, miles can be
redeemed at participating hotels, car rental firms and other program partners. The program
is designed to enhance customer loyalty, and thereby retain and increase the business of
frequent travelers, by offering incentives for their continued patronage. The frequent
flyer program also includes a premier level, Midwest Miles Executive, for members who fly
25 one-way trips or 20,000 miles annually. Midwest Miles Executive offers additional
benefits to its members, including mileage bonuses and partner benefits.

The Company provides two levels of
award tickets for domestic travel on Midwest Airlines or Midwest Connect. The standard
travel award for a roundtrip ticket is 25,000 frequent flyer miles, while a companion
travel award requires 20,000 miles. Choice awards eliminate capacity controls for award
tickets, allowing customers to redeem an additional 25,000 miles for any available seat on
Midwest Airlines or Midwest Connect flights on which the standard frequent flyer award
seats have already been filled, up to the maximum seating capacity of the aircraft.
Standard awards remain subject to capacity controls, which limit seat availability during
peak travel times.

A marketing agreement with American
Airlines allows the Companys frequent flyer program members to earn Midwest Miles on
American, American Eagle and AmericanConnection flights, as well as redeem Midwest Miles
for award travel on these flights. The agreement provides for economic compensation to
American for all awards issued on American, American Eagle and AmericanConnection flights,
and to Midwest Airlines for all Midwest Miles earned on American, American Eagle and
AmericanConnection flights.

The Company also offers the Midwest
Airlines MasterCard program. The program allows Midwest Airlines to offer a co-branded
credit card to enhance loyalty to the airline and to increase frequent flyer membership.
The Company generates income by selling frequent flyer program miles to Juniper Bank,
which in turn awards the miles to cardholders for purchases made with their credit cards.

As of December 31, 2004, the Company
had 1.8 million members enrolled in its frequent flyer program (compared with 1.7 million
at year-end 2003). The Company estimates that as of December 31, 2004, the total number of
awards available under the frequent flyer program was 136,000 (compared with 178,000 at
year-end 2003), after eliminating those accounts below the minimum award level. Air travel
awards redeemed were approximately 69,000 during 2004 and 64,000 during 2003,
respectively. Free travel awards accounted for approximately 5% of the Companys
total revenue passenger miles during 2004. Since the Company controls the number of seats
available for free travel on each flight (other than with respect to its choice awards),
it does not believe that the use of frequent flyer program awards results in a significant
displacement of revenue passengers.

6

---

Miles accrued in a members
account expire unless there is qualifying activity in the frequent flyer program account
in a 36-month period. Qualifying activity includes flights on Midwest Airlines and/or
Midwest Connect, or accrued mileage from any program partner activity during the previous
36-month period. If the account does not remain active, the mileage expires and the
account is considered inactive. Mileage in approximately 112,000 accounts expired in 2004.

A portion of the revenue from the
sale of frequent flyer miles to program partners is deferred and recognized straight-line
over 32 months.

# Related Business

The Company also offers ancillary
airline services directly to customers, including cargo services and aircraft charters.
The cargo business consists of transporting freight, United States mail and
counter-to-counter packages on regular passenger flights.

As of December 31, 2004, Midwest
Airlines operated two MD-80 series jet aircraft configured specifically for the purpose of
providing charter services. The primary customers of aircraft charter services are
athletic teams, business groups and tour operators.

The Company also generates revenue
from inflight liquor sales, providing aircraft ground handling and aircraft maintenance
services for other airlines, and miscellaneous other services.

# Competition

The Company competes with other air
carriers on most routes it serves. Many of the Companys competitors have elaborate
route structures that transport passengers to their hub airports for transfer to many
destinations, including those served by Midwest Airlines and Midwest Connect. Some
competitors offer flights from cities served by Midwest Airlines to more than one of their
hub airports, permitting them to compete in the Companys markets by offering
multiple routings. In some markets, Midwest Airlines and Midwest Connect also compete
against ground transportation.

In the summer of 2004, Northwest
Airlines converted its once-daily Airbus service between Milwaukee and each of Boston, New
York La Guardia and Washington Reagan National to twice-daily regional jets resulting in
the reduction of seats offered on each route. In the second half of 2004, Northwest
Airlines also initiated limited regional jet service between Milwaukee and each of
Baltimore, St. Louis and Kansas City. AirTran Airways ceased service between Milwaukee and
Baltimore in July 2004. In the fall of 2004, US Airways eliminated service between
Pittsburgh and each of Milwaukee and Kansas City. The Company responded to the change in
the Milwaukee-Pittsburgh route with added capacity.

The Company competes in its core
businesses by offering what it believes are superior airline services at competitive
fares. To more closely align its offerings with the needs of the markets it serves, the
Company offers three types of service: Midwest Airlines Signature Service, Midwest
Airlines Saver Service and Midwest Connect regional service. The Company competes by 1)
carefully selecting markets, 2) attempting to generate maximum RASM (Revenue per Available
Seat Mile) through a service-oriented philosophy and rigorous yield management, and 3)
providing superior customer service while operating in a cost-efficient manner. Overall,
the Company believes its efforts to identify favorable markets and provide quality service
enable it to generate a high degree of loyalty among passengers and attract a larger
percentage of business travelers on its flights than higher volume carriers.

7

---

During the second half of 2004, the
Company focused its route planning strategy on increased frequency to existing
destinations, additional connection opportunities and more competitive pricing tactics
designed to create increased total system revenue. This network focus is
continuing as a priority in 2005.

The Company has the largest market
share of passengers in Milwaukee. During 2004, Midwest Airlines and Midwest Connect
collectively carried 39.6% of the passengers boarded in Milwaukee, while Northwest
Airlines, which has the second-largest share, carried 21.4%. In Kansas City, Midwest
Airlines carried 4.6% of the passengers during 2004, compared with 33.7% carried by
Southwest Airlines and 13.2% by American  the carriers with the two largest market
shares in Kansas City.

# Employees

As of December 31, 2004, Midwest
Airlines had 2,290 employees (421 of whom were part-time and 38 of whom were intermittent)
and Midwest Connect had 910 employees (273 of whom were part-time). The categories of
employees were as indicated in the following table:

|                           | Employees as of December 31, 2004
|-------------------------- | ---------------------------------
|
|Flight Operations          |                                  
|Inflight                   |                                  
|Passenger Services         |                                  
|Maintenance                |                                  
|Reservations and Marketing |                                  
|Accounting and Finance     |                                  
|Administrative             |                                  
|                           |                                  
|Total                      |                                  
|                           |                                  

The Company makes extensive use of
part-time employees to increase operational flexibility. Given the size of Midwest
Airlines and Midwest Connects fleet and flight schedules, the Company does not
have continuous operations at many locations. The use of part-time employees enables the
Company to schedule employees when they are needed.

# Labor Relations

Midwest Airlines and Midwest Connect
pilots are represented by the Air Line Pilots Association, a labor union, for
representation in collective bargaining. Midwest Airlines flight attendants are
represented by the Association of Flight Attendants-CWA, AFL-CIO, a labor union, for
representation in collective bargaining. In August 2003, all represented employee groups
ratified amendments to their collective bargaining agreements; the duration of these
agreements is five years from that date.

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

8

---

# Regulation

General

The Department of Transportation
(DOT) has the authority to regulate economic issues affecting air service
including, among other things, air carrier certification and fitness, insurance, deceptive
and unfair competitive practices, advertising, computer reservation systems
(CRS), and other consumer protection matters such as on-time performance,
denied boarding and baggage liability. It is also authorized to require reports from air
carriers and to inspect a carriers books, records and property. The DOT has
authority to investigate and institute proceedings to enforce its economic regulations,
and may, in certain circumstances, assess civil penalties, revoke operating authority and
seek criminal sanctions.

In response to the terrorist attacks
of September 11, 2001, Congress enacted the Aviation and Transportation Security Act
(ATSA) of November 2001. ATSA created the Transportation Security
Administration (TSA), an agency within the DOT, to oversee, among other
things, aviation and airport security. In 2003, TSA was transferred from the DOT to the
Department of Homeland Security, however the basic mission and authority of TSA remain
unchanged. ATSA provided for the federalization of airport passenger, baggage, cargo,
mail, and employee and vendor screening processes. ATSA also enhanced background checks,
provided federal air marshals aboard flights, improved flight deck security, enhanced
airline crew security training, improved training of security screening personnel and
enhanced airport perimeter access, among other security measures. ATSA also required that
all checked baggage be screened by explosive detection systems beginning December 31,
2002. The Company is actively involved in the industrys efforts to work with TSA to
ensure compliance with ATSA. Compliance with ATSA has resulted in increased costs and can
result in operational delays and service disruptions. ATSA also imposed a $2.50 per
enplanement security fee (subject to a $5.00 one-way trip cap). This fee is collected by
air carriers and remitted to the government for payment for enhanced security.

The Federal Aviation Administration
(FAA) regulates the Companys aircraft maintenance and operations,
including flight operations, flight equipment, aircraft noise, ground facilities,
dispatch, communications, training, weather observation, flight and duty time, crew
qualifications, aircraft registration, and other matters affecting air safety. The FAA has
the authority to temporarily suspend or permanently revoke the authority of the Company or
its licensed personnel for failure to comply with regulations promulgated by the FAA, and
to assess civil penalties for such failures.

The Company also is subject to
regulation and/or oversight by federal agencies other than the DOT, TSA and FAA. Antitrust
laws are enforced by the U.S. Department of Justice; labor relations are generally
regulated by the Railway Labor Act, which vests certain regulatory powers in the National
Mediation Board with respect to airlines and labor unions arising under collective
bargaining agreements; the use of radio facilities is regulated by the Federal
Communications Commission. Also, the Company is generally regulated by federal, state and
local laws relating to the protection of the environment and to the discharge of materials
into the environment. In addition, the Immigration and Naturalization Service, the U.S.
Customs and Border Protection (under the Department of Homeland Security), Department of
Defense, OSHA, and the Animal and Plant Health Inspection Service of the Department of
Agriculture have jurisdiction over inspection of the Companys aircraft, passengers
and cargo to ensure compliance with U.S. immigration, customs and import laws.

MaintenanceIn compliance with FAA regulations,
the Companys aircraft are subject to many levels of maintenance or checks, and
periodically go through complete overhauls. The FAA typically monitors maintenance efforts
with FAA representatives on site.

SlotsFAA regulations currently permit the
buying, selling, trading and leasing of certain airline slots at New Yorks La
Guardia and Kennedy International, and Ronald Reagan Washington National airports. A slot
is an authorization to schedule a takeoff or landing at the designated airport within a
specified time window. The FAA must be advised of all slot transfers and can disallow any
such transfer.

9

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The FAAs slot regulations
require the use of each slot at least 80% of the time, measured on a bimonthly basis.
Failure to comply with these regulations without a waiver from the FAA (which is granted
only in exceptional cases) subjects the slot to recall by the FAA. In addition, slot
regulations provide that the FAA may withdraw slots at any time and without compensation
to meet the DOTs operational needs (such as providing slots for international or
essential air transportation). The Companys ability to increase its level of
operations at these airports is affected by the number of slots available for takeoffs and
landings. These slots have been pledged as security to holders of the Companys
convertible senior secured notes (as described in Note 4 of the Notes to Consolidated
Financial Statements contained in this Annual Report on Form 10-K).

# Essential Air Service
Program

The Essential Air Service program
(EAS) was created following airline deregulation action in 1978. The EAS
program, which is administered by the DOT, subsidizes and guarantees a minimum level of
air service to small communities that might not otherwise have service. In January 2003,
Midwest Connect commenced service to three such cities: Iron Mountain, Ironwood and
Manistee, Michigan, and in August 2003, Escanaba, Michigan was added. There is no
guarantee the Company will continue to receive subsidies for serving these cities. If
funding were terminated for any reason, the Company would not continue to operate in these
markets and would find alternate routes for the aircraft currently deployed in these
markets. The markets that were entered into in January 2003 were up for bid in January
2005. The Company is currently in the process of bidding for the subsidy for these
locations.

# Insurance

The Company carries types and amounts
of insurance customary in the airline industry, including coverage for general liability,
passenger liability, property damage, product liability, aircraft loss or damage, baggage
and cargo liability, and workers compensation.

As a result of the terrorist attacks
on September 11, 2001, aviation insurers have significantly reduced the amount of
insurance coverage available to commercial air carriers for war risk coverages (which
include terrorism and hijacking). In addition, insurance companies have significantly
increased the cost of this coverage, as well as aviation insurance in general. Under the
Air Transportation Safety and System Stabilization Act, U.S. air carriers may purchase
certain war risk liability insurance from the United States government on an interim basis
at rates that are more favorable than those available from private aviation insurance
carriers. As a result of the Emergency Wartime Supplemental Appropriations Act of 2003,
the Company received an extension of this coverage through August 31, 2005.

Commercial air carriers are required
by the DOT to obtain appropriate aviation insurance coverage. The effects of September 11
insurance losses, additional terrorist attacks or other unanticipated events could result
in aviation insurers further increasing their premiums or a future shortage of available
aviation insurance. Significant increases in insurance premiums or a shortage of available
insurance could result in the curtailment or discontinuation of scheduled service.

10

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# Seasonality

The Companys results of
operations are impacted by the seasonality associated with the airline industry. Any
interim period is not necessarily representative of results for the entire fiscal year.
Generally, quarterly operating income and, to a lesser extent, revenues tend to be lower
in the first and fourth quarters.

# Risks Related to the
Company and to the Commercial Airline Industry

Investors should carefully consider
the following risk factors, as well as other information included or incorporated by
reference in this Annual Report on Form 10-K in connection with any investment in
the Companys common stock. The risks and uncertainties described below are not only
the only ones that the Company faces. Additional risks and uncertainties not presently
known or that the Company currently believes to be immaterial may also adversely affect
the Company.

Business may be harmed if the
Company cannot benefit from premium pricing.Financially distressed airlines, excess
capacity throughout the industry and the growing use of travel substitutes such as audio,
video and Web conferencing have affected fares throughout the airline industry. Greater
cost sensitivity on the part of travelers, especially business travelers, and increasing
competition from low-cost carriers have reduced pricing power among airlines. At the same
time, the increase in pricing transparency resulting from the use of the Internet has
enabled cost-conscious customers to more easily obtain the lowest fare on any given route.
In addition, the Company competes with carriers that are reorganizing or have reorganized
under the protection of Chapter 11 of the United States Bankruptcy Code. Historically, air
carriers involved in Chapter 11 reorganizations have undertaken substantial fare
discounting to maintain cash flows and enhance customer loyalty. There can be no assurance
that attempts to increase fares will be successful. The Companys business strategy
involves premium pricing on Signature Service routes, and it is possible that premium
pricing in the airline industry will not recover. If premium pricing does not recover,
then the Companys business and financial results could suffer.

Customer loyalty may be affected
due to diminishing product differentiation.The Companys business strategy
includes a premium travel experience at fares that cater to business and leisure
travelers. The Company seeks to differentiate itself through better customer service
throughout the customers travel experience. Due to the current state of the airline
industry in general, and the Companys current state, it has been forced to reduce or
suspend some of the amenities that helped it achieve differentiation. For example,
complimentary inflight meal service has been reduced to beverages, snacks and cookies,
with buy-onboard dining service. Given these changes, there can be no assurance that
customers will perceive any differentiation from other airlines and remain loyal to the
Company. Any loss of customers due to diminishing product differentiation could harm
business.

The September 11, 2001 terrorist
attacks seriously affected the industry.The terrorist attacks of September
11, 2001 materially affected the airline industry. Since then, security procedures have
been increased at airports including more security personnel and more sophisticated
screening equipment, which has had a significant impact on the profitability of airlines.

Increased competition
could harm business.Midwest Airlines competes with other
air carriers on all routes that it serves. Many of Midwest Airlines competitors have
elaborate route structures that transport passengers to their hub airports, permitting
them to compete in Midwest Airlines markets by offering multiple routings. In some
markets, Midwest Airlines and Midwest Connect also compete against ground transportation.

11

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With Saver Service, Midwest Airlines
has been able to compete with other low-fare carriers in ways that are different from its
Signature Service. Among other things, the Company competes more clearly on the basis of
fare levels. There is no assurance it will be able to compete successfully on these bases.

There are risks associated with
Midwest Airlines ongoing purchases of Boeing 717 aircraft.Midwest Airlines currently has a firm
purchase order for 25 Boeing 717 aircraft and options to purchase up to 25 additional
Boeing 717s at pre-negotiated prices. Midwest Airlines took delivery of the first Boeing
717 on February 28, 2003, and 16 more through December 2004. The Company plans to take
delivery of the remaining seven Boeing 717s for which it has a firm order, but is
currently in discussions regarding the delivery schedule for these aircraft. The Company
is also in discussions with Boeing regarding the options to purchase 25 additional Boeing
717s. Among other risks, the acquisition of these aircraft involves the following:

| | The
acquisition significantly affects cost structure by adding higher fixed costs because the
Boeing 717 aircraft have higher ownership costs (i.e., purchase costs and lease payment
expenses) than the DC-9 aircraft they replaced. Midwest Airlines believes that benefits
of Boeing 717 aircraft include greater fuel efficiency, lower maintenance costs, improved
dispatch reliability, increased aircraft utilization and reduced regulatory compliance
costs. Midwest Airlines also believes it will realize higher revenues through increased
utilization and because demand for air travel will increase due to it using these
aircraft. While Midwest Airlines believes the combined effect of these higher revenues
and reduced costs will offset the higher ownership costs, there can be no guarantee that
will be the case. Further, it relies on benefits that are variable in nature to offset
fixed costs. To date, the Boeing 717 program has realized certain benefits, such as
higher fuel efficiency. However, this has been fully offset by an increase in aircraft
rental and maintenance costs.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Midwest
Airlines is dependent on Boeing to enable it to acquire the Boeing 717s. Under the terms
of the financing agreement with Boeing, Boeing is able to terminate its financing
commitment if it deems the Company has experienced a material adverse change. If Boeing
exercises this termination right or is otherwise unwilling or unable to perform its
contractual obligations, then Midwest Airlines would have to find another supplier for
aircraft. There can be no assurance Midwest Airlines could purchase aircraft in the same
time frame as it currently expects or at comparable prices. In addition, if Boeing
terminates its relationship with Midwest Airlines, Midwest Airlines could potentially
incur substantial transition costs, such as costs associated with employee retraining.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Due
to the number of Boeing 717 aircraft Midwest Airlines intends to have in its fleet, it
would be vulnerable if any design defect or mechanical problem becomes associated with
the Boeing 717 aircraft or if there is adverse public perception of these aircraft.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
there are not markets in which the Company can employ its Boeing 717s, it may have excess
aircraft in its fleet.
|- | -------------------------------------------------------------------------------------------------------------------

| | Boeing
has announced that it expects to discontinue manufacturing Boeing 717 jet aircraft in
2006. The Company currently operates 18 Boeing 717s (received another aircraft in
February 2005) and has a firm order for seven more aircraft. The Company also has the
option to purchase 25 additional Boeing 717s and is currently in discussion with Boeing
regarding those options. Boeing may not offer the same level of support once the Boeing
717s are discontinued. This could lead to increased prices on parts or services for the
Company.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Increases in fuel costs, or the
failure of fuel costs to decrease, could harm business.Fuel costs constitute a significant
portion of the Companys total operating costs (approximately 24% for the year ended
December 31, 2004). Accordingly, significant increases in fuel costs or the failure of
current fuel prices to decrease would harm its financial condition and results of
operations. For the year ended December 31, 2004, a one-cent increase in the price per
gallon of fuel expense would have increased fuel expenses by approximately $0.8 million.
Historically, fuel costs have been subject to wide price fluctuations based on
geopolitical issues and changes in supply and demand. Fuel availability is also subject to
periods of market surplus and shortage, and is affected by demand for both home heating
oil and gasoline. Because of the effect of these events on the price and availability of
fuel, the cost and future availability of fuel cannot be predicted with any degree of
certainty. In the event of a fuel supply shortage, fuel prices will rise, which could
result in the curtailment of scheduled service. There can be no assurance that increases
in the price of fuel can be offset with higher fares or surcharges.

12

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In addition, although the Company
periodically manages the price risk of fuel by purchasing commodity options that establish
ceiling prices and partially protect against significant increases in fuel prices, these
options do not protect against ordinary course price increases and are limited in fuel
volume and duration.The Company has periodically hedged fuel prices by entering
into short-term option cap agreements in an attempt to reduce exposure to substantial jet
fuel price fluctuations. There can be no assurance that attempts to manage this risk are
sufficient to protect against increases in the price of fuel due to inadequate fuel
supplies or otherwise. Currently the Company has collars in place for a portion of fuel
usage for all of 2005. During 2004, $0.3 million was expensed because jet fuel prices fell
outside the collar; $0.8 million was recorded as a potential liability for future fuel
prices that may fall outside of the collars. The collars for first quarter 2005 cover
approximately 25% of the total estimated fuel consumption with an average floor price of
$1.37 per gallon and average ceiling price of $1.60 per gallon, which includes into-plane
costs. There are collars in place that cover 18.0%, 13.6% and 9.2% of the estimated fuel
consumption for second, third and fourth quarters of 2005, respectively as of January 31,
2004. Ceiling prices are set at $1.39, $1.40 and $1.40 per gallon and floor prices are set
at $1.19, $1.20 and $1.20 per gallon for the second, third and fourth quarter of 2005,
respectively. The Company anticipates continuing to hedge future fuel purchases for 2005
as circumstances and market conditions allow.

Changes in regulations imposing
additional requirements and restrictions on operations could increase operating costs and
result in service delays and disruptions.Airlines are subject to extensive regulatory
and legal requirements, both domestically and internationally, that involve significant
compliance costs. For example, on November 19, 2001, the President signed into law the
Aviation and Transportation Security Act, which federalizes substantially all aspects of
civil aviation security and requires, among other things, the implementation of security
measures, such as the requirement that all passenger bags be screened for explosives.
Funding for airline and airport security under the law is primarily provided by a $2.50
per enplanement security fee (subject to a $5.00 one-way trip cap), with authority granted
to the Transportation Security Administration (under the Department of Homeland Security)
to impose additional fees on air carriers if necessary to cover additional federal
aviation security costs. Implementation of the requirements of the act resulted in
increased costs for passengers and the Company.

In addition to increased costs, the
security measures required to be implemented under the Aviation Security Act, as well as
additional security measures that the Transportation Security Administration has
implemented, have resulted in a longer check-in process for passengers and caused delays
and disruptions in airline service, resulting in customer frustration and reducing demand
for airline travel.

Additional laws, regulations, taxes,
and airport rates and charges have been proposed periodically that could significantly
increase the cost of airline operations or reduce demand for air travel. If adopted, these
measures could have the effect of raising ticket prices, reducing revenue and increasing
costs. There can be no assurance that these and other laws or regulations enacted in the
future will not harm business.

The Companys common stock
could be delisted by the New York Stock Exchange, which could materially reduce the
liquidity of the common stock.The Companys common stock is
listed on the New York Stock Exchange. A prolonged reduction in the trading price of the
Companys common stock could cause the Company to be delisted. This risk is greater
if the New York Stock Exchange adopts a proposal to modify its listing standards to
increase the dollar thresholds for the average total market capitalization and the average
shareholders equity that a listed company is required to maintain. Delisting could
materially reduce the liquidity of the Companys common stock and result in a
corresponding material reduction in the price of the Companys common stock. The lack
of liquidity could make it more difficult for the Company to raise capital in the future.

13

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An unfavorable resolution of the
Companys exemption from Wisconsin ad valorem property taxes could harm the business.On November 7, 2003, a Dane County, Wisconsin circuit court, in an action brought by
Northwest Airlines, Inc., declared invalid the Wisconsin statute that provides the hub
airline exemption from Wisconsin ad valorem property taxes. Savings to the Company from
the exemption have exceeded $2.5 million annually. The Company estimates savings as high
as $7 million annually by 2010. The State of Wisconsin and the Company have appealed the
trial court decision. Northwest Airlines, Inc., and several other airlines have brought
related identical cases for subsequent tax years, and these cases have been stayed or
consolidated. The appeal of the underlying case is pending in the Wisconsin Court of
Appeals, and a decision is expected in the first half of 2005. The Company believes it is
probable that it will be ultimately successful in the litigation, resulting in a decision
upholding the ad valorem exemption. The Company also believes it would not be subject to
retroactive collection of the tax for 2004 or prior years even if the exception is found
to be invalid by the Court of Appeals.

An unfavorable resolution to the
Companys litigation filed by Dornier Aviation (North America) Inc. Liquidating
Trust.In December 2003, Dornier Aviation
(North America) Inc. Liquidating Trust filed litigation against Skyway, disputing the
validity of $3.5 million of credit memorandums used by the Company to purchase aircraft
parts and services. The credit memorandums obtained by the Company were associated with
the acquisition of the Fairchild 328JET aircraft and through subsequent resolution of
Dorniers cancellation of the 428JET program. The Company contends the credit
memorandums were properly applied and has not recorded any reserve in respect to this
matter.

The Company may be unable to
compete effectively against airlines with greater financial resources or lower operating
costs.The airline industry is characterized
generally by low profit margins and high fixed costs, primarily for personnel, debt
service and rent. The expenses of an aircraft flight do not vary significantly with the
number of passengers carried, and as a result, a relatively small change in the number of
passengers or in pricing could have a disproportionate effect on an airlines
operating and financial results.

In addition, the airline industry is
highly competitive and particularly susceptible to price discounting because airlines
incur only nominal costs to provide service to passengers occupying otherwise unsold
seats. The Company currently competes with other airlines on most of its routes. Many of
these airlines are larger and have significantly greater financial resources and name
recognition or lower operating costs.

The airline industry tends to
experience adverse financial results during general economic downturns.

Since a substantial portion of air
travel is discretionary, the industry tends to experience adverse financial results
during general economic downturns. However, recent improvements in the economy have not
resulted in improved financial conditions for the airline industry as a whole due to,
among other things, excess industry capacity. Any general decline in passenger traffic
may harm the Companys business. Any decline in traffic by business travelers may
have a greater impact on the Company than on many of its competitors because it believes
a greater percentage of its passengers are business travelers.

Continuing financial uncertainty
in the airline industry may make it increasingly difficult to attract and retain
personnel. The airline industry has endured four
years of financial losses. Like most other carriers, the Company has had to make numerous
changes to pay and benefit practices that have resulted in significant economic sacrifices
by employees. Organizational streamlining, while an essential part of enhancing
productivity, has likewise increased demands on staff and limited growth opportunities.
Uncertainty as to the industrys or the Companys long-term prospects is an
additional impediment to the career confidence of current staff and future candidates for
recruitment. As general improvements in the economy and labor markets surpass those in the
airline industry, there is an increasing risk that airlines will have difficulty competing
for talent, especially in key roles.

14

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The Companys business is
heavily dependent on the Milwaukee market, and a reduction in demand for air travel in
this market could harm business.A substantial percentage of the
Companys flights have Milwaukee as their origin or destination. As a result, the
Company remains largely dependent on the Milwaukee market, and a reduction in its share of
the Milwaukee market or reduced passenger traffic to or from Milwaukee could have a
material adverse effect on business.

The Companys indebtedness
could adversely affect its financial health.

The Companys indebtedness could
have important consequences, including:

| | increasing
its vulnerability to general adverse economic and industry conditions;
|- | ---------------------------------------------------------------------------------

| | requiring
that a portion of cash flow from operations be used for the payment of interest on debt,
thereby reducing the ability to use cash flow to fund working capital, capital
expenditures and general corporate requirements;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | limiting
the ability to obtain additional financing to fund future working capital, capital
expenditures and general corporate requirements;
|- | --------------------------------------------------------------------------------------------------------------------------------------------

| | limiting
flexibility to plan for or react to changes in business and the airline industry; and
|- | ----------------------------------------------------------------------------------------------

| | placing
the Company at a competitive disadvantage to its competitors that have less indebtedness.
|- | -------------------------------------------------------------------------------------------------

# Available Information

The Company maintains a Web site at
www.midwestairlines.com. On its Web site, the Company makes available, free of
charge, the Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports, as soon as reasonably practical after
the reports have been electronically filed or furnished to the Securities and Exchange
Commission. In addition, the Company has available on its Web site, free of charge, its
(a) code of business conduct; (b) code of ethics for its chief executive officer and
financial officers; (c) corporate governance guidelines; and (d) the charters for the
following Committees of the Board of Directors: Audit, Compensation, and Board Affairs and
Governance; all of which are also available in print upon written request to the Director
of Investor Relations of the Company at 6744 South Howell Avenue, Oak Creek, WI 53154. The
Company is not including the information contained on or available through its Web site as
a part of, or incorporating such information by reference into, this Annual Report on
Form 10-K.

# ITEM 2. PROPERTIES

# Aircraft Equipment

As of December 31, 2004, Midwest
Airlines had 17 Boeing 717 and 13 McDonnell Douglas jet aircraft in service, including two
MD-88, eight MD-81 and three MD-82 aircraft.

# Midwest Airlines
Aircraft in Service

|Type       | Seats | Owned | Leased | Total
|---------- | ----- | ----- | ------ | -----
|MD-88      |       |       |        | 143  
|MD-81/82   |       |       |        | *    
|Boeing 717 |       |       |        | 88   
|           |       |       |        |      
|Total      |       |       |        |      
|           |       |       |        |      

|* | A
portion of the MD-80 series fleet has been reconfigured for Saver Service. As of December
31, 2004, six of the MD-80 series aircraft have been reconfigured with 147 seats. In
addition, two of the MD-81 aircraft have been reconfigured to 74 seats and are used
primarily for charter flights. The remaining three MD-80 series aircraft are configured
for Signature Service, with 116 seats.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

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As part of the Companys
restructuring in 2003, the Company renegotiated its agreements with aircraft lessors and
lenders. The information in this section reflects the amended agreements.

One MD-88 aircraft lease expires in
2007, two MD-81/82 aircraft leases and one MD-88 aircraft lease expire in 2011, and the
remaining MD-81 lease expires in 2013. The Boeing 717 aircraft leases all have 20-year
terms, the first of which expires in 2023.

As of December 31, 2004, Midwest
Connects fleet consisted of 22 aircraft: 12 Beech 1900D turboprop aircraft and 10
Fairchild 328JET aircraft.

# Midwest Connect
Aircraft in Service

|Type        | Seats | Owned | Leased | Total
|----------- | ----- | ----- | ------ | -----
|Beech 1900D |       |       |        | 19   
|328JET      |       |       |        | 32   
|            |       |       |        |      
|Total       |       |       |        |      
|            |       |       |        |      

Midwest Connect acquired 15 new Beech
1900D turboprop aircraft between January 11, 1994 and May 18, 1995. During fourth quarter
2003, the Beech 1900D fleet was reduced to 14 as one aircraft was removed from the fleet
and sold by the lessor. The fleet was further reduced to 12 in the first and second
quarters of 2004, as two Beech 1900D aircraft were removed from the fleet and sold by the
lessor in the first quarter 2004. Each of these aircraft had 19 passenger seats. As of
December 31, 2004, Midwest Connects 12 turboprop aircraft were financed under
operating leases with lease terms of 12 years; five of the aircraft leases have expiration
dates of 2008 and the other leases expire in 2009. 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. A lessor of five of the aircraft sold its interest
to another party in December 2004. The terms associated with the new leases were
substantially the same as the original lease, except that the new agreement required a
deposit of $2.3 million, which is classified as a security deposit in other assets on the
balance sheet. This deposit is fully refundable if the Company meets its obligations.

In 1999, Midwest Connect acquired
five 32-passenger Fairchild 328JET aircraft. The five aircraft were financed by operating
leases from one financial institution, with expiration dates all occurring in 2016. Four
aircraft were placed in service in late 1999; the fifth was placed in service in 2000.
Five additional 328JET aircraft were acquired and placed in service during January, April
and June 2001, and January and February 2002. These aircraft are currently owned, three of
which are financed with debt.

All owned, otherwise unencumbered
aircraft have been pledged as security to holders of the Companys convertible senior
secured notes (described in Note 4 of the Notes to the Consolidated Financial Statements
contained in this Annual Report on Form 10-K).

# Facilities

The Company has secured long-term use
of gates and maintenance facilities at General Mitchell International Airport in
Milwaukee. The Company is a signatory to the airport master lease, which expires in 2010,
for 19 gates at the Milwaukee airport, including ticket counters, baggage handling and
operations space. In 1988, the Company completed construction of its maintenance facility
at the Milwaukee airport with a lease of land from the airport for an initial term of five
years ending March 31, 1993, with an option for the Company to extend the lease for 11
successive renewal terms of five years each. To date, the Company has chosen to renew the
lease for three successive renewal terms, and the lease will expire in 2008 if the Company
chooses not to extend such lease for another five years.

In October 1998, Midwest Airlines
completed construction of a 97,000-square-foot maintenance facility that is owned by
Milwaukee County and located at General Mitchell International Airport adjacent to its
other maintenance facility. See Note 4 of the Notes to the Consolidated Financial
Statements contained in this Annual Report on Form 10-K for further detail
regarding the financing of this facility.

16

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In August 1997, the Company purchased
its Oak Creek, Wisconsin headquarters building, which it had previously leased. In July
2000, the Company opened a new 55,000-square-foot facility as an addition to its
headquarters. In November 2003, the Company completed a sale/leaseback transaction on the
headquarters facility. The initial term of the lease is 15 years.

Midwest Airlines leases airport
facilities (gates, operations space, ticket counter) at each location it operates. In 10
of the 23 cities Midwest Airlines served as of December 31, 2004, gates at the airport
were leased directly from the airport authority. In 13 cities, Midwest Airlines has
agreements with various airlines to lease available space.

Midwest Connect has secured long-term
leases of facilities at General Mitchell International Airport. Midwest Connect currently
operates five gates at General Mitchell International Airport in Milwaukee; all gates are
leased directly from Milwaukee County. Midwest Connect owns its 10,000 square-foot
headquarters building, which is located off airport grounds. This building is pledged as
collateral under the convertible senior secured notes.

Midwest Connect leases airport
facilities at each location it operates unless the airport also has Midwest Airlines
service. Midwest Connect also leases space from Midwest Airlines at three locations that
were originally served by Midwest Airlines. Additionally, Midwest Connect serves markets
where third parties deliver aircraft and passenger handling services. These leases are for
various terms and contain other provisions that are customary in the industry.

In February 2002, the Company
completed construction of a new maintenance facility for Midwest Connect, located at
General Mitchell International Airport. The facility is owned by Milwaukee County. See
Note 4 of the Notes to the Consolidated Financial Statements contained in this Annual
Report on Form 10-K for further detail regarding the financing of this facility.

# ITEM 3. LEGAL PROCEEDINGS

The Company is a party to routine
litigation incidental to its business. Management believes that none of this litigation is
likely to have a material adverse effect on the Companys consolidated financial
position and results of operations. The more significant legal proceedings are discussed
below.

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

In December 2003, Dornier Aviation
(North America) Inc. Liquidating Trust filed litigation against Skyway, disputing the
validity of $3.5 million of credit memorandums used by the Company to purchase aircraft
parts and services. The credit memorandums obtained by the Company were associated with
the acquisition of the Fairchild 328JET aircraft and through subsequent resolution of
Dorniers cancellation of the 428JET program. The Company contends the credit
memorandums were properly applied and has not recorded any reserve in respect to this
matter.

# ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote
of security holders during the fourth quarter of 2004.

17

---

# PART II

ITEM 5. MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES

# Market Price of Common
Stock

The following table sets forth, for
the periods indicated, the high and low price per share of the Companys common stock
for the two most recent fiscal years. The Companys common stock is traded on the New
York Stock Exchange (symbol: MEH).

|       | Fiscal 2004 |  | Fiscal 2003 |     
|------ | ----------- |  | ----------- | ----
|
|First  |             |  | $           | 4.57
|Second |             |  | $           | 4.90
|Third  |             |  | $           | 4.35
|Fourth |             |  | $           | 3.70

As of December 31, 2004, the Company
had 18,178,398shares issued and 17,470,822 shares outstanding and 894 registered
shareholders. The Company has not paid a dividend on its common stock since its initial
public offering in 1995 and has no intention to pay any dividends on such common stock in
the foreseeable future. The Company is also subject to a dividend restriction under
outstanding indebtedness, which is further discussed in Note 4 of the Notes to the
Consolidated Financial Statements contained in this Annual Report on Form 10-K.

18

---

# ITEM 6. SELECTED
FINANCIAL DATA

# Five-Year Financial
and Operating Data Midwest Air Group, Inc. (Dollars in thousands, except per share
amounts)

|2004                                     
|-----------------------------------------
|Statement of Operations Data:            
|Total operating revenues                 
|Total operating expenses (1)             
|                                         
|Operating (loss) income                  
|Other (expense) income, net (2)          
|(Loss) income before cumulative effect   
|of accounting changes                    
|Cumulative effect of accounting changes, 
|net of applicable income taxes           
|Net (loss) income                        
|(Loss) income per common share - basic:  
|(Loss) income before cumulative effect   
|of accounting changes                    
|Cumulative effect of accounting changes, 
|net of applicable income taxes           
|                                         
|Net (loss) income                        
|(Loss) Income per common share - diluted:
|(Loss) Income before cumulative effect   
|of accounting changes                    
|Cumulative effect of accounting changes, 
|net of applicable income taxes           
|                                         
|Net (loss) income                        
|Balance Sheet Data:                      
|Property and equipment, net              
|Total assets                             
|Long-term debt (3)                       
|Shareholders' equity                     

|(1) | Total
operating expenses for 2004 include $3.4 million associated with engine maintenance
contract-related costs, plus $1.0 million associated with the early recognition of lease
expense on three DC-9 aircraft and two Beech 1900D aircraft removed from service, and the
restructuing of leasees for five Beech 1900D aircraft. Total operating expenses for 2003
include $5.0 million associated with the early recognition of lease expense on seven DC-9
aircraft removed from service during the year, and a $4.0 million loss recorded on the
sale/leaseback of one MD-80 aircraft. Total operating expenses for 2002 include a $29.9
million impairment charge related to the early retirement of the Company's DC-9 fleet.
Total operating expenses for 2001 include an impairment loss of $8.8 million related to
the accelerated retirement of eight Midwest Airlines DC-9 aircraft.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Other
income (expense), net, for 2003 includes $11.4 million associated with the federal
reimbursement of security costs. Other income (expense), net for 2002 includes $39.5
million associated with the Fairchild arbitration settlement over the cancellation of the
428JET program. Other income (expense), net for 2001 includes recognition of $16.3
million related to amounts claimed under the Air Transportation Safety and System
Stabilization Act for federal grant money received for losses related to the September 11
terrorist events.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Long-term
debt for 2004, 2003 and 2002 does not include amounts due for progress payments on the
Boeing 717 aircraft program, as these obligations are offset by purchase deposits.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

---

# Five-Year Financial
and Operating Data Midwest Air Group, Inc.

|2004                                        
|--------------------------------------------
|Selected Operating and Other Data (1):      
|Midwest Airlines, Inc.                      
|Revenue passenger miles ("RPMs") (000s)     
|Available seat miles ("ASMs") (000s)        
|Passenger load factor                       
|Revenue yield (cents per RPM)               
|Revenue per scheduled service ASM (2)       
|Cost per total ASM (cents per mile)         
|Aircraft in service at year-end (3)         
|Average aircraft utilization (hours per day)
|Number of FTE employees at year-end         
|Skyway Airlines, Inc. d/b/a Midwest Connect 
|Revenue passenger miles (000s)              
|Available seat miles (000s)                 
|Passenger load factor                       
|Revenue yield (cents per RPM)               
|Revenue per scheduled service ASM (2)       
|Cost per total ASM (cents per mile)         
|Aircraft in service at year-end (3)         
|Average aircraft utilization (hours per day)
|Number of FTE employees at year-end         

|(1) | Revenue
passenger miles, revenue per ASM, available seat miles, passenger load factor and revenue
yield are for scheduled service operations. The other statistics include charter
operations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Passenger,
cargo and other transport-related revenue divided by scheduled service ASM (expressed in
cents). Charter revenue is excluded from the calculation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Aircraft
acquired but not yet placed in service are excluded from the aircraft in service
statistics.
|--- | -----------------------------------------------------------------------------------------------------

20

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ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

# RESULTS OF OPERATIONS

# Overview

The past three years have brought
unprecedented challenges to the airline industry. As an industry, airlines recorded a
combined $14.9 billion loss for 2002 and 2003, and once again posted a multi-billion
dollar net loss in 2004. High fuel prices, coupled with the effects of the conflict in the
Middle East and increased security measures, have increased operating costs. These
pressures, along with excess industry capacity and increased competition from legacy
carriers, their regional affiliates and low-cost carriers that has depressed fares,
resulted in the Company reporting operating losses in 2002, 2003 and 2004.

In 2003, the Company took action to
improve its financial performance through the launch of Midwest Airlines Saver Service,
changes to schedules at Midwest Connect, significant cost restructuring measures and a
recapitalization of the Company.

In 2004, the Company took a more
comprehensive look at its operations, processes and significant cost drivers. Changes have
been made based on this analysis, including entering into fuel hedges to reduce the risk
associated with the rising fuel prices and outsourcing of heavy maintenance to better
align maintenance operations with the current fleet. Cost reduction and efficiency
improvement initiatives will continue through 2005. Detailed discussion of each of these
measures is included in Recent Developments.

Key risks to the Company achieving a
return to profitability include the depressed business travel fare environment, increased
competition, the economy, world events and high fuel costs. The Company discusses these
and other risks more fully in the Risk Factors section of Item 1, Business contained in
this Annual Report on Form 10-K.

# Recent Developments

Fuel HedgesIn October 2004, the Company began
hedging a portion of the price risk related to anticipated future jet fuel requirements
through a collar option strategy. The collars, which have been designated as cash flow
hedges, involve the purchase of fuel call options with the simultaneous sale of fuel put
options with identical expiration dates. As of the end of December 2004, $0.3 million has
been expensed because jet fuel prices have fallen below the collars. The collars for first
quarter 2005 cover approximately 25% of the total estimated fuel consumption at a swap
rate of approximately $1.45 per gallon and with an average floor price of $1.37 per gallon
and average ceiling price of $1.60 per gallon, which includes into-plane costs. There are
collars in place that cover 18.0%, 13.6% and 9.2% of the estimated fuel consumption for
second, third and fourth quarters of 2005, respectively, as of January 31, 2005. The
Company anticipates continuing to hedge future fuel purchases for 2005 as circumstances
and market conditions allow.

Heavy MaintenanceIn the fourth quarter of 2004, the
Company announced that heavy maintenance operations for the MD-80 aircraft would be
outsourced to a third party maintenance provider beginning in early 2005. Due to changes
in the composition of the Companys airline fleet, the Company determined it is no
longer economical to maintain a heavy maintenance operation in-house. Outsourcing this
activity will reduce costs and turn time for the aircraft.

21

---

# 2004 Financial Overview

|(Dollars in millions)      | Twelve Months Ended
December 31, | 
|-------------------------- | -------------------------------- | 
|
|Total Operating Revenue    |                                  | 
|Total Operating Expenses   |                                  | 
|Operating Loss             |                                  | 
|Net Loss                   |                                  | 
|Net Loss per Diluted Share |                                  | 

Capacity, as measured by scheduled
service available seat miles (ASMs), increased 16.9% in 2004. Capacity
increased 19.8% at Midwest Airlines and decreased 5.2% at Midwest Connect. Midwest
Airlines capacity increased primarily due to the full year effect of the introduction of
the Saver Service in late 2003, which increased the number of seats on the aircraft
compared to Signature Service, plus the net addition of two more aircraft in the fleet
year over year, which resulted in a 3.0% increase in the number of operations (an operation is
one take-off and landing). Midwest
Connects capacity decrease was due primarily to removal of two aircraft during the
year. Traffic, as measured by revenue passenger miles, increased 15.1%. Load factor
decreased from 64.9% in 2003 to 63.8% in 2004.

The Companys total revenue in
2004 increased 8.2% from 2003. The increase in revenue was due primarily to an increase in
passenger volume at Midwest Airlines of 16.6%, as measured by revenue passenger miles.
Passenger volume at Midwest Connect remained constant. Charter revenue increased $2.5
million primarily due to the Companys agreement with The Mark Travel Corporation,
which was entered into in late 2003. However, the increase in revenue was partially offset
by a 6.1% decrease in revenue yield due to a continued decline in high-yield business
travel, heavy industrywide fare discounting implemented to stimulate travel demand, and
increased competition in many markets, including Midwest Airlines main base of
operations in Milwaukee.

The Companys operating expenses
increased 11.1% in 2004. Operating costs for 2004 include a $10.5 million, or 32.9%,
increase in maintenance expense due to $3.4 million (pre-tax) in engine maintenance
contract-related expenses as well as a charge of $1.2 million (pre-tax) related to
aircraft disposal and lease restructuring. Operating expenses also include a $27.3
million, or 33.6%, increase in fuel costs; per-gallon fuel prices averaged $1.35 for the
year up from $1.01 in 2003. These costs were partially offset by savings realized from
companywide cost reduction efforts and reduced costs in commissions, dining services and
depreciation. 2003 operating costs include a charge of $5.0 million (pre-tax) related to
the early recognition of lease expense on seven leased DC-9 aircraft removed from service
during the year. Cost changes are further explained in the sections that follow.

22

---

The following table provides
operating revenues and expenses for the Company expressed as cents per total ASM,
including charter operations, and as a percentage of total operating revenues for 2004,
2003 and 2002.

|                              | 2004 |  | 2003 |         | 2002 | 
|----------------------------- | ---- |  | ---- | ------- | ---- | 
|
|Operating revenues:           |      |  |      |         |      | 
|Passenger service             |      |  |      | 8.75    | ¢    | 
|Cargo                         |      |  |      | 0.13    |      | 
|Other                         |      |  |      | 1.38    |      | 
|                              |      |  |      |         |      | 
|Total operating revenues      |      |  |      | 10.26   |      | 
|Operating expenses:           |      | 
|Salaries, wages and benefits  |      |  |      | 3.53    |      | 
|Aircraft fuel and oil         |      |  |      | 2.68    |      | 
|Commissions                   |      |  |      | 0.26    |      | 
|Dining services               |      |  |      | 0.18    |      | 
|Station rental/landing/other  |      |  |      | 0.97    |      | 
|Aircraft maintenance          |      |  |      | 1.05    |      | 
|Depreciation and amortization |      |  |      | 0.43    |      | 
|Aircraft rentals              |      |  |      | 1.00    |      | 
|Impairment loss               |      |  |      | 0.00    |      | 
|Other                         |      |  |      | 1.28    |      | 
|                              |      |  |      |         |      | 
|Total operating expenses      |      |  |      | 11.38   | ¢    | 
|                              |      |  |      |         |      | 
|Total ASMs (millions)         |      |  |      | 4,048.2 |      | 

|Note:
Numbers in this table may not be recalculated due to rounding.
|--------------------------------------------------------------------

# Year Ended December
31, 2004 Compared WithYear Ended December 31, 2003

# Operating Revenues

Company operating revenues totaled
$415.2 million in 2004, a $31.3 million, or 8.2%, increase from 2003. Passenger revenues
accounted for 85.3% of total revenues and increased $26.3 million, or 8.0%, from 2003 to
$354.2 million in 2004.

Midwest Airlines passenger revenue
increased $19.1 million, or 7.3%, from 2003 to $279.2 million in 2004. The increase in
revenue was primarily due to an increase in passenger volume of 16.6% at Midwest Airlines.
However, this was partially offset by a decrease in load factor from 66.3% in 2003 to
64.6% in 2004 and an 8.0% decrease in revenue yield due to a continued decline in
high-yield business travel, heavy industrywide fare discounting implemented to stimulate
travel demand, and increased competition in many markets, including Midwest Airlines
main base of operations in Milwaukee.

Midwest Connect passenger revenue
increased $7.2 million, or 10.6%, from 2003 to $75.0 million in 2004. Revenue yield
increased due to the transition to shorter flights with higher yields, as seen by a
decrease of 12.2% in average trip length. Load factor increased from 53.3% in 2003 to
56.2% in 2004.

Revenue from cargo and other services
increased $5.0 million in 2004. Cargo increased $0.5 million primarily due to an increased
volume of mail. Other services revenue increased due to a $2.5 million increase in charter
revenue primarily from the Companys agreement with The Mark Travel Corporation. This
was partially offset by a decrease in private charters from the National Hockey League
players lockout. An increase in passenger volume caused revenue from fees (excess
baggage, administration, service charges) to increase 15%, which was the primary reason
for the $2.0 million increase in other services revenue.

23

---

# Operating Expenses

2004 operating expenses increased
$46.1 million, or 11.1%, from 2003 to $460.5 million in 2004. 2003 operating costs include
a charge of $5.0 million (pre-tax) related to the early recognition of lease expense on
seven leased DC-9 aircraft. The Companys cost per total ASM decreased 6.2%, from
12.1¢ in 2003 to 11.4¢ in 2004.

Salaries, Wages and
BenefitsSalaries, wages and benefits
increased $2.6 million, or 1.9%, from 2003 to $142.7 million in 2004, primarily due to a
12.9% increase in headcount. The headcount increase was primarily the result of a 3.1%
increase in the number of operations and a 15.1% increase in passenger volume. Costs for 2003 include a
$1.6 million reduction in labor rates, which also contributed to decreased unit labor
costs year-over-year. On a cost per total ASM basis, labor costs decreased from 4.1¢
in 2003 to 3.5¢ in 2004.

Aircraft Fuel and OilAircraft fuel and oil and associated
taxes increased $27.3 million, or 33.6%, from 2003 to $108.4 million in 2004. Costs
increased 12.8% on a cost per ASM basis. Into-plane fuel prices increased 33.1% in 2004,
averaging $1.35 per gallon in 2004 versus $1.01 per gallon in 2003, resulting in a $27.0
million unfavorable pre-tax price impact (calculated by applying 2003 prices to actual
gallons consumed in 2004 and comparing the result to actual 2004 expense). Fuel
consumption increased 0.5% in 2004 due to a 3.1% increase in the number of operations.

CommissionsCommissions decreased $1.0 million,
or 9.2%, from 2003 to $10.4 million in 2004. The decrease was primarily due to the
elimination of standard travel agency commissions beginning March 1, 2003. In addition,
savings were realized because of increased travel booked directly through the
Companys reservations center and Web site. Commissions, as a percentage of passenger
revenue, decreased from 3.5% in 2003 to 2.9% in 2004.

Dining ServicesDining service costs decreased $0.6
million, or 7.2%, from 2003 to $7.5 million in 2004. The decrease in dining services was
primarily due to the elimination of complimentary onboard meal service in April 2003,
which is reflected in a decrease in dining service costs per Midwest passenger from $3.92
in 2003 to $3.24 in 2004.

Station Rental, Landing
and Other FeesStation rental, landing and other fees
increased $2.9 million, or 8.0%, from 2003 to $39.4 million in 2004. On a cost per total
ASM basis, these costs decreased 8.8%. The increase was due to a $1.4 million increase in
ground handling fees caused by the 3.1% increase in the number of operations. Security fees increased
$0.6 million due to the fact that 2004 includes 12 months of security fees compared with
only 10 months in 2003. This increase was partially offset by the effects of additional
capacity created by the introduction of Saver Service.

Aircraft Maintenance
Materials and RepairsAircraft maintenance costs increased
$10.5 million, or 32.9%, from 2003 to $42.6 million in 2004. Aircraft maintenance costs
increased 12.2% on a cost per total ASM basis. The increase was partially caused by a $3.4
million expense relating to an engine maintenance agreement. Additionally, a 4.4% increase
in flight hours for the Boeing 717 and MD-80 aircraft increased engine overhaul costs $6.8
million.

Depreciation and AmortizationDepreciation and amortization
decreased $3.6 million, or 17.2%, from 2003 to $17.3 million in 2004. Depreciation costs
decreased primarily due to one owned DC-9 aircraft that was retired from the fleet in
2004. On a cost per total ASM basis, these costs decreased 30.1%.

Aircraft RentalsAircraft rental costs increased $7.7
million, or 23.6%, from 2003 to $40.3 million in 2004. The increase was due primarily to
the addition of six leased Boeing 717 aircraft to the Midwest Airlines fleet year over
year. On a cost per total ASM basis, these costs increased 4.4% from 2003.

24

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# Other (Expense) Income

Interest income reflects interest
earned on the Companys cash and cash equivalents. Interest expense consists of
interest on a short-term note payable and interest on the Companys long-term debt
related to aircraft and convertible debt.

In May 2003, the Company recorded
other income of $11.4 million (pre-tax) received from the April 2003 Emergency Wartime
Supplemental Appropriations Act for reimbursement of security costs.

# Credit for Income Taxes

Income tax credit for 2004 was $(4.1)
million, a $3.0 million decrease from the 2003 income tax credit of $(7.1) million. The
effective tax rates for 2004 and 2003 were (8.6)% and (35.0)%, respectively. The decrease
in the effective tax rate is the result of the Company no longer recording income tax
benefits on losses beginning in the second quarter due to accumulated losses and the
inability to offset net operating losses against deferred tax liabilities.

# Net Loss

Net loss for 2004 was $(43.1)
million, which reflects a decline of $29.8 million from the 2003 net loss of $(13.3)
million. The net loss margin declined from (3.5)% in 2003 to (10.4)% in 2004.

# Year Ended December
31, 2003 Compared WithYear Ended December 31,
2002

# Operating Revenues

Company operating revenues totaled
$383.9 million in 2003, a $43.0 million, or 10.1%, decrease from 2002. Passenger revenues
accounted for 85.4% of total revenues and decreased $50.1 million, or 13.3%, from 2002 to
$327.9 million in 2003.

Midwest Airlines passenger revenue
decreased $45.4 million, or 14.9%, from 2002 to $260.1 million in 2003. This decrease was
primarily caused by a 15.0% decrease in revenue yield. Revenue yield decreased due to a
substantial decline in high-yield business travel, the sluggish economy and increased
competition in many markets, including Midwest Airlines main base of operations in
Milwaukee. The introduction of Saver Service during the third and fourth quarters also
contributed to the decrease in revenue yield. Load factor increased from 61.6% in 2002 to
66.3% in 2003.

Midwest Connect passenger revenue
decreased $4.7 million, or 6.5%, from 2002 to $67.8 million in 2003. This decrease was
primarily caused by an 11.3% decrease in revenue yield. Revenue yield decreased due to
decreased business travel and lower fares that were used to stimulate travel demand. The
decrease in revenue yield was partially offset by a 5.4% increase in passenger volume, as
measured by revenue passenger miles. Load factor increased from 48.9% in 2002 to 53.3% in
2003.

Revenue from cargo, charter and other
services increased $7.1 million in 2003. Midwest Airlines benefited from increased revenue
from charter sales as more aircraft time was available for charter service and the Company
had exclusive charter rights for nine professional sports teams as of December 31, 2003.
The increased charter revenue was partially offset by a $1.2 million decrease in cargo
revenue. Most of this decrease was due to lower U.S. Postal Service mail volumes, in large
part the result of security directives and restrictions, as well as a new contract with
the U.S. Postal Service that resulted in lower initial volumes.

# Operating Expenses

2003 operating expenses decreased
$66.8 million, or 13.9%, from 2002 to $414.4 million in 2003. The Company realized savings
from companywide cost reduction efforts, with reduced costs in many categories, as
detailed below. 2002 operating costs include a $29.9 million (pre-tax) impairment charge
related to the early retirement of the Companys DC-9 fleet. The Companys cost
per total ASM decreased 8.0%, from 13.2¢ in 2002 to 12.1¢ in 2003.

25

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Salaries, Wages and
BenefitsSalaries, wages and benefits
decreased $16.5 million, or 10.6%, from 2002 to $140.1 million in 2003. The labor cost
decrease reflects the reduction of 496 full-time equivalent employees year over year. The
headcount decrease was primarily the result of furloughing employees to align with reduced
capacity and increase employee productivity, as well as attrition. A $1.6 million
reduction in labor rates also contributed to decreased labor costs. These decreases were
partially offset by increased benefit costs, primarily higher medical insurance costs. On
a cost per total ASM basis, labor costs decreased from 4.3¢ in 2002 to 4.1¢ in
2003.

Aircraft Fuel and OilAircraft fuel and oil and associated
taxes increased $2.4 million, or 3.1%, from 2002 to $81.1 million in 2003. Costs increased
10.1% on a cost per ASM basis. Into-plane fuel prices increased 21.5% in 2003, averaging
$1.01 per gallon in 2003 versus $0.83 per gallon in 2002, resulting in a $14.2 million
unfavorable pre-tax price impact (calculated by applying 2002 prices to actual gallons
consumed in 2003 and comparing the result to actual 2003 expense). Fuel consumption
decreased 15.1% in 2003 because of a decrease in flight operations, as well as lower fuel
consumption rates of the Boeing 717 aircraft compared with the DC-9 fleet. As of December
31, 2003, the Company had no fuel hedges in place for current or later periods.

CommissionsCommissions decreased $7.0 million,
or 38.1%, from 2002 to $11.4 million in 2003. This category includes travel agent
commissions and credit card transaction commissions. The decrease was primarily due to the
elimination of standard travel agency commissions beginning March 1, 2003, as well as a
13.3% decrease in passenger revenue. In addition, savings were realized because of
increased travel booked directly through the Companys reservations center and Web
site, and other travel-related Web sites. Commissions, as a percentage of passenger
revenue, decreased from 4.9% in 2002 to 3.5% in 2003.

Dining ServicesDining service costs decreased $11.6
million, or 59.0%, from 2002 to $8.0 million in 2003. The decrease was due to the
elimination of complimentary onboard meal service in April 2003 as well as a 2.0% decrease
in origin and destination passengers at Midwest Airlines. Total dining service costs per
Midwest passenger decreased from $9.47 in 2002 to $3.92 in 2003.

Station Rental, Landing
and Other FeesStation rental, landing and other fees
decreased $1.2 million, or 3.2%, from 2002 to $36.5 million in 2003. On a cost per total
ASM basis, these costs increased 3.4%. Costs per seat mile increased primarily because of
fixed costs that were not absorbed as efficiently following the Companys capacity
reductions, as well as a decrease in flight lengths at Midwest Connect.

Aircraft Maintenance
Materials and RepairsAircraft maintenance costs decreased
$8.9 million, or 21.8%, from 2002 to $32.0 million in 2003. Aircraft maintenance costs
decreased 16.5% on a cost per total ASM basis. The decrease was caused by lower costs at
Midwest Airlines due to the phase-out of the DC-9 aircraft and was partially offset by
increased maintenance costs at Midwest Connect due to higher costs of maintaining the
328JET aircraft.

Depreciation and
AmortizationDepreciation and amortization
decreased $0.3 million, or 1.2%, from 2002 to $20.9 million in 2003. Costs in this
category were essentially unchanged as the addition of one MD-80 aircraft to the fleet in
March 2003 and the acquisition of spare parts to support the Boeing 717 program were
offset by the decrease in depreciation related to the DC-9 aircraft retired from the fleet
year over year. On a cost per total ASM basis, these costs increased 5.5% due to the
Companys reduced capacity year over year.

26

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Aircraft RentalsAircraft rental costs increased $7.3
million, or 29.1%, from 2002 to $32.6 million in 2003. The increase was primarily due to
the early recognition of $5.0 million (pre-tax) of lease expense on seven leased DC-9
aircraft removed from service during 2003, as well as the addition of 11 leased Boeing 717
aircraft to the Midwest Airlines fleet year over year. The increase was partially offset
by the lower lease rates negotiated on all other leased aircraft remaining in service.
Lease expense was recorded at the new restructured rates beginning in the third quarter
2003. On a cost per total ASM basis, these costs increased 37.9% from 2002.

Impairment LossDuring the first quarter of 2002, the
Company decided to accelerate the retirement of the Midwest Airlines DC-9 fleet in
anticipation of accelerated deliveries of Boeing 717 aircraft. In connection with this
decision, the Company performed evaluations to determine, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal on Long-Lived Assets, whether
probability-weighted future cash flows from an asset (undiscounted and without interest
charges) expected to result from the use and eventual disposition of these aircraft would
be less than the aggregate carrying amounts. As a result of the evaluation, the Company
determined that the estimated probability-weighted future cash flows would be less than
the aggregate carrying amounts, resulting in impairment as defined by SFAS No. 144.
Consequently, in first quarter 2002, the cost bases of these assets were reduced to
reflect the fair market value at the date of the decision, resulting in a $29.9 million
(pre-tax) impairment loss, and the remaining depreciable lives were adjusted for the new
retirement schedule. In determining the fair market value of these assets, the Company
considered market trends in aircraft dispositions, data from third parties and management
estimates.

Other Operating ExpensesOther operating expenses decreased
$1.2 million, or 2.2%, from 2002 to $51.7 million in 2003. Other operating expenses
consist primarily of advertising and promotion, insurance, property taxes, flight
training, legal fees, crew hotel rooms, reservation fees, administration and other items.
The decrease was primarily due to cost decreases in insurance, advertising, flight
training and crew hotel room expenses. These decreases were partially offset by increased
legal and professional services costs of $2.5 million associated with the Companys
restructuring efforts, increased costs for the frequent flyer program and a $4.0 million
loss recorded on the sale/leaseback of one MD-80 aircraft. The MD-80 aircraft
sale/leaseback transaction was part of the overall aircraft restructuring transactions.
The transaction resulted in the retirement of approximately $7.0 million of debt related
to the aircraft, which had a book value of approximately $11.0 million on the date of the
sale/leaseback. On a cost per total ASM basis, other operating costs increased 4.4% from
2002.

# Interest Income and
Interest Expense

Interest income reflects interest
earned on the Companys cash and cash equivalents. Interest expense consists of
mortgage interest associated with the Companys headquarters building, as well as
interest on a short-term note payable, interest associated with the borrowings against the
secured bank credit facility, and interest on the Companys long-term debt related to
aircraft and convertible debt.

# Other Income (Expense)

In May 2003, the Company recorded
other income of $11.4 million (pre-tax) received from the April 2003 Emergency Wartime
Supplemental Appropriations Act for reimbursement of security costs.

In 2002, the Company recorded other
income of $39.5 million (pre-tax) associated with the Companys settlement of
arbitration with Fairchild Dornier GmbH (Fairchild) over the cancellation of
its 428JET program.

# Credit for Income Taxes

Income tax credit for 2003 was $(7.1)
million, a $1.4 million increase from the 2002 income tax credit of $(5.7) million. The
effective tax rates for 2003 and 2002 were (35.0)% and (35.0)%, respectively. 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 Corporation 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.

27

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# Net Loss

Net loss for 2003 was $(13.3)
million, which reflects a decline of $2.7 million from the 2002 net loss of $(10.6)
million. The net loss margin declined from (2.5)% in 2002 to (3.5)% in 2003.

# Critical Accounting
Policies and Estimates

The preparation of the Companys
financial statements in conformity with accounting principles generally accepted in the
United States of America requires the Company to make estimates, assumptions and judgments
that affect amounts of assets and liabilities reported in the consolidated financial
statements, the disclosure of contingent assets and liabilities as of the date of the
financial statements, and reported amounts or revenues and expenses during the year. The
Company believes its estimates and assumptions are reasonable, however future results
could differ from those estimates under different assumptions or conditions.

Critical accounting policies are
policies that reflect material judgment and uncertainty and may result in materially
different results using different assumptions or conditions. The Company considers the
following as its critical accounting policies and estimates: frequent flyer revenue and
impairment of long-lived assets. For a detailed discussion of accounting policies, refer
to the Notes to Consolidated Financial Statements contained in this Annual Report on
Form 10-K.



Frequent Flyer RevenueA portion of the revenue from the
sale of frequent flyer mileage credits is deferred and recognized as passenger revenue
when transportation is likely to be provided, based on estimates of the fair value of
tickets to be redeemed, straight-line over 32 months, which is the Companys estimate
of when travel will occur. The estimated incremental cost of providing future
transportation in conjunction with travel miles under the Companys frequent flyer
program is accrued based on an estimated redemption percentage of 76% applied to actual
mileage recorded in members accounts over the standard award level. As part of
estimating incremental costs, the Company includes the additional costs related to
transportation of passengers, over and above costs to transport vacant seats, such as
fuel, meals, insurance and ticketing. A change to these cost estimates and the estimated
redemption percentage could have a significant impact on the Companys liability in
the period the change is made, as well as in future periods. The ultimate cost will depend
on the actual redemption of frequent flyer miles, and may be greater or less than amounts
accrued at December 31, 2004.

Impairment of Long-Lived
AssetsThe Company records impairment
charges on long-lived assets used in operations when events and circumstances indicate the
assets may be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than their carrying amount. The Company uses judgment when applying the
impairment rules to determine when an impairment test is necessary. Factors the Company
considers that could trigger an impairment review include significant underperformance
relative to historical or forecasted operating results, a significant decrease in the
market value of an asset, and significant negative industry or economic trends.

Impairment losses are measured as the
amount by which the carrying value of an asset exceeds its estimated fair value. The
Company is required to make estimates of its future cash flows related to the asset
subject to review. These estimates require assumptions about demand for the Companys
service, future market conditions and industry competition. Other assumptions include
determining the discount rate and future growth rates.

28

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# Off-Balance Sheet
Arrangements

An off-balance sheet arrangement is
any transaction, agreement or other contractual arrangement involving an unconsolidated
entity under which a company has (1) made guarantees, (2) a retained or a contingent
interest in transferred assets, (3) an obligation under derivative instruments classified
as equity, or (4) any obligation arising out of a material variable interest in an
unconsolidated entity that provides financing, liquidity, market risk or credit risk
support to the company, or that engages in leasing, hedging, or research and development
arrangements with the company.

The Company has no arrangements of
the types described in any of the categories that may have a material current or future
effect on the Companys financial condition, liquidity or results of operations. See
Notes 3 and 4 of Notes to the Consolidated Financial Statements contained in this
Annual Report on Form 10-K.

# Liquidity and Capital
Resources

The Companys unrestricted cash
and cash equivalents totaled $81.5 million at December 31, 2004, compared with $88.3
million at December 31, 2003. At December 31, 2004, the restricted cash balance was $29.1
million, compared with $26.1 million on December 31, 2003. The change in restricted cash
is primarily attributable to an increase in the cash holdback amount related to credit
card processing agreement for MasterCard/Visa transactions, which is discussed in more
detail in Note 4 of the Notes to Consolidated Financial Statements contained in this
Annual Report on Form 10-K. In the third quarter of 2004, the Company did not
achieve the monthly covenants stated in the MasterCard/Visa agreement, and the credit card
processor increased the holdback amount from 80% to 90% in December 2004, or approximately
$23.0 million. Due to a subsequent violation, the credit card processor may opt to
increase the holdback amount up to 100%, and the Company and the credit card processor are
currently in discussions to determine what, if any, adjustments will be made to the
holdback amount. The aggregate amount of the risk exposure of all the processors (other
than amounts under holdback) as of January 31, 2005 was approximately $10.7 million. In
addition to the holdback amount, the restricted cash balance also includes amounts for
insurance and collateral for letters of credit and the fuel collar agreement.

As of December 31, 2004, the Company
had a working capital surplus of $30.5 million compared with $39.3 million on December 31,
2003. The reduction in working capital as of December 31, 2004 is primarily related to a
decrease in unrestricted cash and an increase in air traffic liability, partially offset
by an increase in inventories and restricted cash.

Operating ActivitiesNet cash used in operations for the
year ended December 31, 2004 totaled $5.1 million. Cash used by operations at December 31,
2004 primarily reflects the $43.1 million net loss incurred during the year. This was
partially offset by the effects of credits used related to the acquisition of Boeing 717
aircraft. Midwest Airlines has used credit memos from certain suppliers associated with
the delivery of each Boeing 717 aircraft for the acquisition of aircraft spare parts and
maintenance tooling, employee training, flight simulator rental, aircraft and engine lease
payments, and engine maintenance agreements. As of December 31, 2004, the amount of unused
credit memos totaled $3.3 million and is recorded as Other Assets. Midwest Airlines will
receive additional credit memos on the delivery of each subsequent Boeing 717 aircraft,
and will continue to use the credits as needed to pay for applicable services. The income
statement benefit of these credit memos is being recognized over the term of the leases.
Credits available for aircraft lease payments were, for the most part, used up during the
first quarter of 2004.

Investing ActivitiesNet cash provided by investing
activities totaled $12.9 million compared with $3.6 million for the year ended December
31, 2003. The change primarily relates to the increase in capital expenditures in 2003
relating to the build-up of spare parts and other equipment in anticipation of the
introduction of the Boeing 717 program. The change was also caused by decreases in
aircraft purchase deposits and pre-delivery progress payments related to future deliveries
of Boeing 717 aircraft that were offset by a decrease in purchase deposits that had been
returned for the six Boeing 717 deliveries in 2004. Capital spending (net of credits)
decreased year-over-year, totaling $5.2 million for the year ended December 31, 2004.

29

---

Financing ActivitiesNet cash used in financing activities
during 2004 totaled $14.6 million compared with net cash provided by financing activities
in 2003 of $21.4 million. During 2003, the Company netted approximately $31.1 million from
the issuance of private placement convertible debt and equity and generated approximately
$10.0 million in new capital from the sale/leaseback of the Company headquarters facility.
There was no activity for these two items in 2004. This change was partially offset by a
$2.7 million increase in the net payments of debt in regard to the progress payments due
to the change in timing of the Boeing 717 deliveries.

In second quarter 2002, Midwest
Airlines entered into a loan agreement to fund pre-delivery progress payments to The
Boeing Company for new Boeing 717 aircraft. Midwest Airlines also entered into a loan
agreement with Kreditanstalt fur Wiederaufbau Bank (KfW) with the assistance
of Rolls-Royce Deutschland Ltd. & Co. KG (Rolls-Royce). Rolls-Royce agreed
to guarantee this loan agreement on behalf of Midwest Airlines. This agreement is
discussed in more detail in Note 4 of the Notes to Consolidated Financial Statements
contained in this Annual Report on Form 10-K. As of December 31, 2004, the Company
owed $13.5 million under the loan agreement. The Company expects that the debt associated
with this financing transaction will continue to trend downward, as the firm aircraft
delivery schedule is more than half completed.

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

The Company maintains a qualified
defined benefit plan, the Pilots Supplemental Pension Plan (the Qualified
Plan), which provides supplemental retirement benefits to Midwest Airlines pilots,
and an unfunded nonqualified defined benefit plan to provide Midwest Airlines pilots with
annuity benefits for salary in excess of amounts permitted to be paid under the provisions
of the tax law to participants in the Qualified Plan. The method used to determine the
market-related value of plan assets is the prior years market-related value of
assets, adjusted by contributions, disbursements, expected return on investments and 20%
of investment gains (losses) during the five prior years. As of December 31, 2004, the
Qualified Plan assets are invested primarily in equities and fixed income instruments.
Additional discussion of Plan investment strategy is in Note 10 of the Notes to
Consolidated Financial Statements contained in this Annual Report on Form 10-K.
Funding requirements for the Qualified Plan in 2003 were $0.4 million, which was fully
paid in 2004. Estimated 2004 plan year funding requirements for the Qualified Plan are
$1.5 million, which will be paid in September 2005.

As discussed in Note 4 of the Notes
to Consolidated Financial Statements contained in this Annual Report on Form10-K,
the Company issued promissory notes (the Basic Moratorium Notes) to its
lessors and lenders as part of its restructuring agreements in 2003. The aggregate
principal amount of these notes is $7.5 million. Principal and interest on these Basic
Moratorium Notes are payable, in arrears, in 36 monthly installments. Payments on the
Basic Moratorium Notes began in July 2004 for a total of $1.3 million in principal
payments as of December 31, 2004.

As a result of the 2003 restructuring
of lease and debt agreements, the Company has significantly lowered its obligations
compared with the obligations under the previous lease and debt agreements. Included in
the restructured agreements are clauses that would make the Companys obligations,
under certain default situations, increase to the amounts under the previous agreements.
Such defaults include the Company filing for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. The amount of such contingent obligation of the Company is approximately
$24.7 million as of December 31, 2004.

30

---

Other Factors Affecting
LiquidityThe Company has not paid federal
income taxes in the last three years. As of December 31, 2004, the Company had a
non-current deferred tax liability of $8.0 million and deferred tax assets aggregating
$7.3 million. These amounts included $35.2 million related to net operating losses
(NOLs) and a valuation allowance of $21.6 million. Due to accumulated losses
and the inability to offset net operating losses against deferred tax liabilities, the
Company no longer records income tax benefits effective with the second quarter of 2004.

At December 31, 2004, the Company had
estimated tax NOLs of $74.4 million for federal income tax purposes that will expire
through 2023. The Company had also previously recorded estimated state NOLs of $187
million, as well as alternative minimum tax carryforward of $2.4 million. Due to the
uncertainty of realizing the NOLs, the Company recorded an additional state valuation
allowance of $23.1 million and a federal valuation allowance of $13.1 million in the year
ended December 31, 2004.

Contractual ObligationsThe following table of material debt
and lease commitments at December 31, 2004, summarizes the effect these obligations are
expected to have on the Companys cash flow in the future periods set forth below (in
thousands):

|                            | Related Cash Outflows | 
|--------------------------- | --------------------- | 
|
|Long-Term Debt Obligations  |                       | 
|Operating Lease Obligations |                       | 
|Capital Lease Obligation    |                       | 
|Other Long-Term Commitments |                       | 
|                            |                       | 
|Total                       |                       | 
|                            |                       | 

|Note:
Regarding the Companys commitments to acquire Boeing 717, the above table reflects,
under Other Long-Term Commitments, the estimated lease payments the Company
expects to pay after delivery of aircraft (which the Company has estimated based on
assumptions regarding lease terms, interest rates and other factors), rather than
reflecting the purchase price for the aircraft and the related obligation to make
progress payments. Similarly, long-term debt in the above table does not include debt for
progress payments related to the acquisition of Boeing 717 aircraft. The Embraer regional
jet program will require long-term financing on or after delivery, which the Company has
not yet arranged, therefore an estimated amount has not been included in the above table.
The Companys aircraft financing is discussed in more detail in Note 4 of the Notes
to Consolidated Financial Statements contained in this Annual Report on Form10-K.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2005 and BeyondThe current weak revenue environment
and volatile nature of fuel prices make it difficult to accurately project cash flow from
operations for 2005 and beyond. Absent adverse factors outside the control of the Company
 such as terrorist attacks or heightened fear of terrorist attacks, further
substantial deterioration in the current industry revenue environment, significant
increases in fuel prices or failure of prices to decrease from fourth quarter 2004 prices
 the Company believes current liquidity and cash flow from operations will be
sufficient to fund current operations through 2005. Key cash flow items for 2005 and
beyond include:

| | The
Company anticipates total capital spending to be approximately $15 million for 2005 and
approximately $8-10 million annually in 2006 and 2007, excluding aircraft acquisitions,
which are expected to be leased. The Company expects most of the spending to be for spare
parts for the Boeing 717 program and continued maintenance support of Midwest Airlines
MD-80 fleet. Some of the capital spending will be funded using credit memos.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys goal is to be cash flow neutral in 2005 through increases in revenue and
the realization of targeted annualized costs savings of $15-20 million from changes in
labor productivity, insourcing, outsourcing and other cost reductions.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company estimates net interest expense of $2.0 million in 2005.
|- | -------------------------------------------------------------------

31

---

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

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

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

New Accounting
PronouncementIn December 2004, FASB issued
Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004),
Share-Based Payment (SFAS 123R). This standard requires expensing
of stock options and other share-based payments and supersedes SFAS No. 123, which had
allowed companies to choose between expensing stock options or showing proforma disclosure
only. This standard is effective for the Company as of July 1, 2005 and will apply to all
awards granted, modified, cancelled or repurchased after that date as well as the unvested
portion of prior awards. The Company will adopt the standard as of the effective date and
believes it will not have a material effect on the financial statements.

32

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# ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys primary market
risk exposures include commodity price risk (i.e., aircraft fuel prices) and interest rate
risk. The Companys operating results are significantly impacted by changes in the
price and availability of aircraft fuel. The Company periodically manages the price risk
of fuel primarily by purchasing fuel hedge collars that establish floor and ceiling
prices. Those options are recorded at their fair market value, and the changes in fair
market value are recorded in the consolidated statement of operations in accordance with
Statement of Financial Accounting Standards (SFAS), No. 133, Accounting
for Derivative Instruments and Hedging Activities and the corresponding amendments
under SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities. For 2004, aircraft fuel and oil and associated taxes (including
the effect of any of the Companys options) represented 24% of the Companys
total operating expenses. Based on the Companys fiscal 2004 fuel consumption of
approximately 80 million gallons, a one-cent change in the average annual price per gallon
of aircraft fuel would increase the Companys fuel expense by approximately $0.8
million. As of December 31, 2004, the Company had fuel hedge collars in place covering a
percentage of the total fuel consumption for 2005. The collars for first quarter 2005
cover approximately 25% of the total estimated fuel consumption with an average floor
price of $1.37 per gallon and average ceiling price of $1.60 per gallon, which includes
into-plane costs. There are collars in place that cover 18.0%, 13.6% and 9.2% of the
estimated fuel consumption for the second, third and fourth quarters of 2005,
respectively. Ceiling prices are currently at $1.39, $1.40 and $1.40 per gallon, and floor
prices are set at $1.19, $1.20 and $1.20 per gallon for the second, third and fourth
quarter of 2005, respectively.

As of December 31, 2004, the Company
had no short- or long-term debt obligations that were subject to variable interest rates.
The Companys fixed rate debt was adjusted to market rates during the restructuring
that was completed in August 2003; the convertible notes were priced at fixed rates during
third quarter 2003 and the Company believes that all debt appropriately reflects the
current fair value at December 31, 2004.

# ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

# Consolidated Financial
Statements

|                                                |                                                                                                                                                                                                                                
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Page 34
Page 35
Page 36
Page 37
Page 38
Page 39 | Independent Auditors' Report
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements

All schedules for which provision is
made in the applicable accounting regulations of the Securities and Exchange Commission
have been omitted because they are not applicable, not required or the information has
been furnished elsewhere.

33

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders of Midwest Air Group, Inc.Milwaukee, WI

We have audited the accompanying
consolidated balance sheets of Midwest Air Group, Inc. and subsidiaries (the
Company) as of December 31, 2004 and 2003, and the related consolidated
statements of operations, shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2004. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on the financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). 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 Air Group, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results
of their operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted in the
United States of America.

We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over financial reporting as of
December 31, 2004, based on the criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 16, 2005 expressed an unqualified opinion on
managements assessment of the effectiveness of the Companys internal control
over financial reporting and an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.

/s/  Deloitte & Touche LLPDeloitte & Touche LLP

Milwaukee, WIFebruary 16,
2005

34

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# CONSOLIDATED
STATEMENTS OF OPERATIONS

MIDWEST AIR GROUP, INC.
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

|                                           | 2004 |  | 2003 |         | 2002 |  
|------------------------------------------ | ---- |  | ---- | ------- | ---- | -
|Operating revenues:                        |      |  |      |         |      |  
|Passenger service                          |      |  | $    | 354,201 |      | $
|Cargo                                      |      |  |      | 5,001   |      |  
|Other                                      |      |  |      | 56,044  |      |  
|                                           |      |  |      |         |      |  
|Total operating revenues                   |      |  |      | 415,246 |      |  
|                                           |      |  |      |         |      |  
|                                           |      |  |     
|Operating expenses:                        |      | 
|Salaries, wages and benefits               |      |  |      | 142,747 |      |  
|Aircraft fuel and oil                      |      |  |      | 108,391 |      |  
|Commissions                                |      |  |      | 10,385  |      |  
|Dining services                            |      |  |      | 7,470   |      |  
|Station rental, landing and other fees     |      |  |      | 39,375  |      |  
|Aircraft maintenance materials and repairs |      |  |      | 42,578  |      |  
|Depreciation and amortization              |      |  |      | 17,309  |      |  
|Aircraft rentals                           |      |  |      | 40,323  |      |  
|Impairment loss                            |      |  |      | --      |      |  
|Other                                      |      |  |      | 51,920  |      |  
|                                           |      |  |      |         |      |  
|Total operating expenses                   |      |  |      | 460,498 |      |  
|                                           |      |  |      |         |      |  
|Operating loss                             |      |  |      | (45,252 | )    |  
|                                           |      |  |      |         |      |  
|                                           |      |  |     
|Other (expense) income:                    |      | 
|Interest income                            |      |  |      | 1,874   |      |  
|Interest expense                           |      |  |      | (3,794  | )    |  
|Other, net                                 |      |  |      | (13     | )    |  
|                                           |      |  |      |         |      |  
|Total other (expense) income               |      |  |      | (1,933  | )    |  
|                                           |      |  |      |         |      |  
|                                           |      |  |     
|Loss before income tax credit              |      |  |      | (47,185 | )    |  
|Income tax credit                          |      |  |      | (4,053  | )    |  
|                                           |      |  |      |         |      |  
|Net loss                                   |      |  | $    | (43,132 | )    | $
|                                           |      |  |      |         |      |  
|Loss per common share - basic:             |      |  | $    | (2.47   | )    | $
|Loss per common share - diluted:           |      |  | $    | (2.47   | )    | $

See notes to consolidated
financial statements.

35

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# CONSOLIDATED BALANCE
SHEETS

MIDWEST AIR GROUP, INC.
AS OF DECEMBER 31, 2004 AND 2003 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

|ASSETS                                                                     | 2004 |  | 2003 |        
|-------------------------------------------------------------------------- | ---- |  | ---- | -------
|Current assets:                                                            |      |  |      |        
|Cash and cash equivalents                                                  |      |  | $    | 81,492 
|Accounts receivable, less allowance for                                    |      | 
|doubtful accounts of $129 in 2004 and $100 in 2003                         |      |  |      | 4,555  
|Inventories                                                                |      |  |      | 9,036  
|Prepaid expenses                                                           |      |  |      | 10,468 
|Restricted cash                                                            |      |  |      | 29,134 
|Deferred income taxes                                                      |      |  |      | 7,324  
|                                                                           |      |  |      |        
|Total current assets                                                       |      |  |      | 142,009
|                                                                           |      |  |      |        
|Property and equipment, net                                                |      |  |      | 181,863
|Aircraft purchase deposits and pre-delivery progress payments              |      |  |      | 21,621 
|Other assets, net                                                          |      |  |      | 15,236 
|                                                                           |      |  |      |        
|Total assets                                                               |      |  | $    | 360,729
|                                                                           |      |  |      |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                                       |      | 
|Current liabilities:                                                       |      | 
|Accounts payable                                                           |      |  | $    | 7,345  
|Income taxes payable                                                       |      |  |      | 78     
|Current maturities of long-term debt                                       |      |  |      | 3,185  
|Air traffic liability                                                      |      |  |      | 46,136 
|Unearned revenue                                                           |      |  |      | 13,956 
|Accrued liabilities:                                                       |      | 
|Vacation pay                                                               |      |  |      | 6,940  
|Other                                                                      |      |  |      | 33,897 
|                                                                           |      |  |      |        
|Total current liabilities                                                  |      |  |      | 111,537
|                                                                           |      |  |      |        
|Long-term debt                                                             |      |  |      | 50,478 
|Long-term debt on pre-delivery progress payments                           |      |  |      | 14,096 
|Deferred income taxes                                                      |      |  |      | 7,977  
|Accrued pension and other postretirement benefits                          |      |  |      | 19,523 
|Deferred frequent flyer partner revenue                                    |      |  |      | 6,960  
|Deferred revenue                                                           |      |  |      | 50,698 
|Other noncurrent liabilities                                               |      |  |      | 18,081 
|                                                                           |      |  |      |        
|Total liabilities                                                          |      |  |      | 279,350
|                                                                           |      |  |      |        
|Commitments and contingencies (Notes 4 and 8)                              |      | 
|Shareholders' equity:                                                      |      | 
|Preferred stock, without par value; 5,000,000 shares authorized,           |      | 
|no shares issued and outstanding                                           |      |  |      | --     
|Common stock, $.01 par value; 50,000,000 shares authorized,                |      | 
|18,178,398 shares issued in 2004 and 18,108,959 shares issued in 2003      |      |  |      | 182    
|Additional paid-in capital                                                 |      |  |      | 46,063 
|Treasury stock, at cost; 707,576 shares in 2004 and 707,120 shares in 2003 |      |  |      | (15,580
|Retained earnings                                                          |      |  |      | 51,633 
|Cumulative other comprehensive loss                                        |      |  |      | (919   
|                                                                           |      |  |      |        
|Total shareholders' equity                                                 |      |  |      | 81,379 
|                                                                           |      |  |      |        
|Total liabilities and shareholders' equity                                 |      |  | $    | 360,729
|                                                                           |      |  |      |        

See notes to consolidated
financial statements.

36

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# CONSOLIDATED
STATEMENTS OF CASH FLOWS

MIDWEST AIR GROUP, INC.
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (DOLLARS IN THOUSANDS)

|                                                               | 2004 |  | 2003 |         | 2002 |  
|-------------------------------------------------------------- | ---- |  | ---- | ------- | ---- | -
|Operating activities:                                          |      |  |      |         |      |  
|Net loss                                                       |      |  | $    | (43,132 | )    | $
|Items not involving the use of cash:                           |      | 
|Depreciation and amortization                                  |      |  |      | 17,309  |      |  
|Deferred income taxes                                          |      |  |      | (4,044  | )    |  
|Impairment loss                                                |      |  |      | --      |      |  
|Other, net                                                     |      |  |      | 6,676   |      |  
|Changes in operating assets and liabilities:                   |      | 
|Accounts receivable                                            |      |  |      | (578    | )    |  
|Inventories                                                    |      |  |      | 11      |      |  
|Prepaid expenses                                               |      |  |      | (1,681  | )    |  
|Restricted cash                                                |      |  |      | (3,078  | )    |  
|Other assets                                                   |      |  |      | (1,917  | )    |  
|Accounts payable                                               |      |  |      | 2,463   |      |  
|Deferred frequent flyer partner revenue                        |      |  |      | (971    | )    |  
|Accrued liabilities                                            |      |  |      | (3,604  | )    |  
|Unearned revenue                                               |      |  |      | 555     |      |  
|Accrued pension                                                |      |  |      | 4,128   |      |  
|Air traffic liability                                          |      |  |      | 6,377   |      |  
|Other non-current liabilities                                  |      |  |      | 7,841   |      |  
|                                                               |      |  |      |         |      |  
|Net cash (used in) provided by operating activities            |      |  |      | (13,645 | )    |  
|                                                               |      |  |      |         |      |  
|Investing activities:                                          |      | 
|Capital expenditures                                           |      |  |      | (5,153  | )    |  
|Aircraft purchase deposits and pre-delivery progress payments  |      |  |      | (4,392  | )    |  
|Return of purchase deposits and pre-delivery progress payments |      |  |      | 20,405  |      |  
|Proceeds from sale of property and equipment                   |      |  |      | 848     |      |  
|Other, net                                                     |      |  |      | 1,181   |      |  
|                                                               |      |  |      |         |      |  
|Net cash provided by (used in) investing activities            |      |  |      | 12,889  |      |  
|                                                               |      |  |      |         |      |  
|Financing activities:                                          |      | 
|Proceeds from convertible debt issuance, net                   |      |  |      | --      |      |  
|Proceeds from pre-delivery progress payments                   |      |  |      | 3,877   |      |  
|Proceeds from sale/leaseback transaction, net                  |      |  |      | --      |      |  
|Proceeds received from private equity placement, net           |      |  |      | --      |      |  
|Payment of debt associated with progress payments              |      |  |      | (16,948 | )    |  
|Payment on note payable                                        |      |  |      | --      |      |  
|Other, net                                                     |      |  |      | 7,052   |      |  
|                                                               |      |  |      |         |      |  
|Net cash (used in) provided by financing activities            |      |  |      | (6,019  | )    |  
|                                                               |      |  |      |         |      |  
|Net (decrease) increase in cash and cash equivalents           |      |  |      | (6,775  | )    |  
|Cash and cash equivalents, beginning of period                 |      |  |      | 88,267  |      |  
|                                                               |      |  |      |         |      |  
|Cash and cash equivalents, end of period                       |      |  | $    | 81,492  |      | $
|                                                               |      |  |      |         |      |  
|Supplemental non-cash activities:                              |      | 
|Non-cash incentives                                            |      |  | $    | 8,966   |      | $
|Aircraft sale/leaseback                                        |      |  |      | --      |      |  
|Moratorium note payable to lenders                             |      |  |      | --      |      |  
|Stock warrants to lenders                                      |      |  |      | --      |      |  
|Supplemental cash flow information:                            |      | 
|Cash paid (received) for:                                      |      | 
|Income taxes*                                                  |      |  | $    | 5,021   |      | $
|Interest                                                       |      |  |      | 3,212   |      |  
|Supplemental schedule of investing activities:                 |      | 
|Accrued capital expenditures                                   |      |  | $    | 340     |      | $

* Included in taxes paid are amounts
paid to Kimberly-Clark in accordance with the Tax Agreement totaling $0 in 2004, 2003 and
2002.

See notes to consolidated financial
statements.

37

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# CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY

MIDWEST AIR GROUP, INC.
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (DOLLARS IN THOUSANDS)

|                                             
|---------------------------------------------
|Balances at December 31, 2001                
|Comprehensive loss:                          
|Net loss                                     
|Other comprehensive income  fuel hedges     
|                                             
|Total comprehensive loss                     
|Issuance of 1,675,000 shares of common stock 
|for private equity placement (net of issuance
|costs of $1,456)                             
|Other                                        
|                                             
|Balances at December 31, 2002                
|Comprehensive loss:                          
|Net loss                                     
|Other comprehensive loss:                    
|Fuel hedge                                   
|Additional minimum pension liability         
|                                             
|Total comprehensive loss                     
|Issuance of common stock upon exercise       
|of stock options and related tax benefits    
|Issuance of 965,318 stock options            
|Issuance of 1,571,467 stock warrants         
|Issuance of 1,882,353 shares of common stock 
|for private equity placement (net of issuance
|costs of $468)                               
|Other                                        
|                                             
|Balances at December 31, 2003                
|Comprehensive loss:                          
|Net loss                                     
|Other comprehensive loss:                    
|Fuel hedge                                   
|Additional minimum pension liability         
|                                             
|Total comprehensive loss                     
|Issuance of common stock upon exercise       
|of stock options and related tax benefits    
|Issuance of 271,323 stock options            
|Issuance of 40,400 shares of common stock    
|for conversion of debt                       
|Other                                        
|                                             
|Balances at December 31, 2004                
|                                             

See notes to consolidated
financial statements.

38

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

# MIDWEST AIR GROUP,
INC.YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

# NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Nature of OperationsMidwest Air Group, Inc. has two
separate operating entities, Midwest Airlines, Inc. (Midwest Airlines), and
Skyway Airlines, Inc., a wholly owned subsidiary of Midwest Airlines, doing business as
Midwest Connect (Midwest Connect). Midwest Airlines, a wholly owned
subsidiary of the Company, is a U.S. air carrier providing scheduled passenger service to
destinations in the United States. Midwest Airlines also provides aircraft charter, air
cargo and other airline services. Midwest Connect provides regional scheduled passenger
service to cities primarily in the Midwest.

Basis of PresentationThe accompanying consolidated
financial statements include the accounts of Midwest Air Group, Inc. (the Company)
and its subsidiaries, which are wholly owned. All significant intercompany accounts and
transactions have been eliminated in consolidation.

The accounting policies of the
Company conform to the accounting principles generally accepted in the United States of
America. Amounts reflected in the consolidated financial statements or the notes relate
to continuing operations. Certain prior year amounts have been reclassified to conform to
the current year presentation.

Cash and Cash EquivalentsThe 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. Cash is primarily held
at three financial institutions.

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

Property and EquipmentProperty and equipment are stated at
cost and are 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
is reflected in income.

The depreciable lives for the
principal asset categories are as follows:

|Asset Category                                                                                                                                                                         | Depreciable Life                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------
|Aircraft and related equipment     
Other equipment                    
Office furniture and equipment     
Building                           
Building and leasehold    improvements | 10 to 20 years
5 to 8 years
5 to 20 years
40 years
Lesser of 20 years or remaining life
   of building or lease

39

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Restricted CashRestricted cash pertains primarily
to cash that is due the Company for advance credit card ticket purchases, which under the
terms of the agreement with the credit card processor is held by the credit card
processor until travel takes place; this restricted cash earns a market rate of interest
and is held primarily at one financial institution. Other restricted cash pertains to
deposits related to, among other things, workers compensation policies and the
bond-financed maintenance facilities.

Other AssetsOther assets consist primarily of
airport leasehold rights, capitalized software and credit memos from aircraft suppliers
associated with the delivery of each Boeing 717 aircraft.

Impairment of Long-Lived AssetsThe Company records impairment
charges on long-lived assets used in operations when events and circumstances indicate
the assets may be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than their carrying amount. The amount of any impairment is based
on the fair market value of the related asset.

During first quarter 2002, the
Company decided to accelerate the retirement of the DC-9 fleet of Midwest Airlines in
anticipation of accelerated deliveries of Boeing 717 aircraft. In connection with this
decision, the Company performed evaluations to determine whether probability-weighted
future cash flows from an asset (undiscounted and without interest charges) expected to
result from the use and eventual disposition of these aircraft would be less than the
aggregate carrying amounts. As a result of the evaluation, the Company determined that
the estimated probability-weighted future cash flows would be less than the aggregate
carrying amounts, resulting in an impairment. Consequently, in the first quarter of 2002,
the cost bases of these assets were reduced to reflect the fair market value at the date
of the decision, resulting in a $29.9 million (pre-tax) impairment loss, and the
remaining depreciable lives of such assets were adjusted for the new retirement schedule.
In determining the fair market value of these assets, the Company considered market
trends in aircraft dispositions, data from third parties and management estimates.

Revenue RecognitionPassenger revenue, related
commissions (if any) and cargo revenues are recognized in the period when the service is
provided. The estimated liability for sold, but unused, tickets is included in current
liabilities as air traffic liability. After 13 months, any sold, but unused, tickets are
recognized in revenue and any related commission expense is recorded. The amount of
commissions associated with unearned revenue is included in current assets as prepaid
commissions. A portion of the revenue from the sale of frequent flyer miles is deferred
and recognized straight-line over 32 months. Contract maintenance revenue is recognized
when work is completed and invoiced.

Advertising ExpenseAdvertising costs are charged to
expense when incurred. Advertising expense for the years ended December 31, 2004, 2003
and 2002 was $6.5 million, $5.7 million and $7.6 million, respectively.

Concentrations of RiskCertain of the Companys
employees are covered under various collective bargaining agreements. The Midwest
Airlines pilot, Midwest Connect pilot and Midwest Airlines flight attendant groups all
ratified five-year contracts in August 2003. These contracts represent 11%, 12% and 12%,
respectively, of the Companys employees at December 31, 2004. The Company operates
approximately 86% of its flights and earns approximately 86% of its passenger revenue
based on Milwaukee-originating or Milwaukee-arriving flights; thus, the Company is
impacted by the economy of the Milwaukee area.

40

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Fair Value of Financial InstrumentsThe Company believes the carrying
value of its financial instruments (cash and cash equivalents, accounts receivable and
accounts payable) is a reasonable estimate of the fair value of these instruments due to
their short-term nature or variable interest rate. The carrying value of derivative
instruments has been marked to market based on the fair value of similar instruments as
of the balance sheet date. As of December 31, 2004, the Company had no short- or
long-term debt obligations that were subject to variable interest rates. The Companys
fixed rate debt was adjusted to market rates during the restructuring that was completed
in August 2003; the convertible notes were priced at fixed rates during third quarter
2003, and the Company believes that all debt appropriately reflects the current fair
value at December 31, 2004.

Maintenance and Repair CostsRoutine maintenance and repair costs
for owned and leased aircraft are charged to expense when incurred. The Company expenses
airframe maintenance costs as they are incurred.

Substantially all of Midwest Airlines and
Midwest Connects engines are under fleet hour agreements and therefore engine
maintenance is expensed straight line over the term of the contract.

Frequent Flyer ProgramA portion of the revenue from the
sale of frequent flyer mileage credits is deferred and recognized straight-line over 32
months. The Company believes the method appropriately matches revenues with the period in
which services are provided.

The estimated incremental cost of
providing future transportation in conjunction with miles earned by travel under the
Companys frequent flyer program is accrued based on an estimated redemption
percentage of 76% applied to actual mileage recorded in members accounts that have
accumulated miles equal to or greater than the standard travel award. The incremental
cost includes the cost of fuel, commissary, reservations and insurance. The incremental
cost does not include a contribution to overhead, aircraft cost or profit. The ultimate
cost will depend on the actual redemption of frequent flyer miles and may be greater or
less than amounts accrued at December 31, 2004.

Postretirement Health Care and Life
Insurance BenefitsThe 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 TaxesThe Company accounts for income
taxes in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS 109). 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.

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

Derivative Instruments and Hedging
ActivitiesThe Company accounts for its fuel
hedge derivative instruments as cash flow hedges, as defined in SFAS No. 133 (FAS
133), Accounting for Derivative Instruments and Hedging Activities and
the corresponding amendments under SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities. The value of any options is determined
using estimates of fair market value provided by major financial institutions. All
changes in the fair value of the derivative instruments that are considered effective
under FAS 133 are recorded in other comprehensive income until the underlying hedged fuel
is consumed, when they are reclassified to the income statement as an offset of fuel
expense.

41

---

The Company periodically utilizes
collar structures or options to mitigate the exposure to the fluctuation in aircraft fuel
prices in accordance with the Companys financial risk management policy. This
policy was adopted by the Company to document the Companys philosophy toward
financial risk and outline acceptable use of derivatives to mitigate that financial risk.
The collars establish ceiling prices for anticipated jet fuel purchases and serve as
hedges of those purchases. During 2004, the Company recorded $0.8 million as a liability
for future fuel prices that may fall outside of the collar based on anticipated cash
flows from the fuel hedge collars. This amount will be reclassed to the income statement
as an offset to fuel expense in 2005.

Stock OptionsThe Company has adopted the
disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS
123) as amended by SFAS No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure  an amendment of FASB Statement No. 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 for the 1995 stock
option plan in the consolidated financial statements. Compensation expense was recognized
for the difference between the market value and exercise price as of grant date for
options issued under the 2003 All-Employee Stock Option Plan.

Had compensation costs for the
Companys stock option plan been determined based on their fair value at the grant
dates for awards under those plans consistent with the method of SFAS No. 123, the Companys
net loss and net loss per share would have been greater, as indicated in the pro forma
amounts below (in thousands, except per share amounts):

|                                   | 2004 |  | 2003 |         | 2002 |  
|---------------------------------- | ---- |  | ---- | ------- | ---- | -
|Net loss:                          |      |  |      |         |      |  
|As reported                        |      |  | $    | (43,132 | )    | $
|Add: Total stock-based employee    |      | 
|compensation expense recognized,   |      | 
|net of related tax effect          |      |  |      | 592     |      |  
|Deduct: Total stock-based employee |      | 
|compensation expense determined    |      | 
|under fair value based methods,    |      | 
|net of related tax effect          |      |  |      | (1,916  | )    |  
|                                   |      |  |      |         |      |  
|Pro forma                          |      |  | $    | (44,456 | )    | $
|                                   |      |  |      |         |      |  
|Net loss per share - basic:        |      | 
|As reported                        |      |  | $    | (2.47   | )    | $
|Pro forma                          |      |  | $    | (2.55   | )    | $
|Net loss per share - diluted:      |      | 
|As reported                        |      |  | $    | (2.47   | )    | $
|Pro forma                          |      |  | $    | (2.55   | )    | $

Based on these assumptions, the
weighted average fair value of options granted in each of the last three years where the
exercise price was equal to the fair market value of the stock on the grant date are:
$2.56 in 2004, $2.11 in 2003 and $9.32 in 2002.

42

---

Based on these assumptions, the
weighted average fair value of options granted in each of the last three years where the
exercise price was less than the fair market value of the stock on the grant date are:
$1.74 in 2004, $2.89 in 2003 and not applicable in 2002.

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:

|                        | 2004 |  | 2003 |      | 2002 | 
|----------------------- | ---- |  | ---- | ---- | ---- | 
|Expected volatility     |      |  |      | 53.4 | %    | 
|Risk-free interest rate |      |  |      | 3.6  | %    | 
|Forfeiture rate         |      |  |      | 1.5  | %    | 
|Dividend rate           |      |  |      | 0.0  | %    | 
|Expected life in years  |      |  |      | 7.5  |      | 

Use of EstimatesThe preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, 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.

New Accounting PronouncementsIn December 2004, FASB issued
Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004),
Share-Based Payment (SFAS 123R). This standard requires expensing
of stock options and other share-based payments and supersedes SFAS No. 123, which had
allowed companies to choose between expensing stock options or showing proforma
disclosure only. This standard is effective for the Company as of July 1, 2005 and will
apply to all awards granted, modified, cancelled or repurchased after that date as well
as the unvested portion of prior awards. The Company will adopt the standard as of the
effective date and believes it will not have a material effect on the financial
statements.

# NOTE 2. PROPERTY AND
EQUIPMENT

As of December 31, 2004 and 2003,
property and equipment consisted of the following (in thousands):

|                               | 2004 |  | 2003 |        
|------------------------------ | ---- |  | ---- | -------
|Flight equipment               |      |  | $    | 221,310
|Other equipment                |      |  |      | 15,556 
|Buildings and improvements     |      |  |      | 13,125 
|Office furniture and equipment |      |  |      | 20,218 
|Construction in progress       |      |  |      | 1,701  
|                               |      |  |      |        
|                               |      |  |      | 271,910
|Less accumulated depreciation  |      |  |      | (90,047
|                               |      |  |      |        
|Property and equipment, net    |      |  | $    | 181,863
|                               |      |  |      |        

The Company has recorded capitalized
interest of $1.2 million and $1.1 million for the years ended December 31, 2004 and 2003,
respectively.

43

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# NOTE 3. LEASES

The Company leases aircraft, terminal
space, office space and hangar space. Future minimum lease payments required under
operating leases having initial or remaining noncancellable lease terms in excess of one
year as of December 31, 2004 were as follows (in thousands):

|                        | 
|----------------------- | 
|Year ended December 31, | 
|2005                    | 
|2006                    | 
|2007                    | 
|2008                    | 
|2009                    | 
|2010 and thereafter     | 

As of December 31, 2004, Midwest
Airlines had 22 jet aircraft in service financed by operating leases. These leases have
expiration dates ranging from 2007 through 2024 and generally can be renewed, based on the
fair market value at the end of the lease term, for one to four years. Most of the leases
include purchase options at or near the end of the lease term at fair market value.

Midwest Airlines has received credit
memos from certain suppliers associated with the delivery of each Boeing 717 aircraft to
be used for the acquisition of aircraft spare parts and maintenance tooling, employee
training, flight simulator rental, aircraft lease payments and engine maintenance
agreements. As of December 31, 2004, the amount of unused credit memos totaled $3.3
million and is recorded as Other Assets. Midwest Airlines will receive additional credit
memos on the delivery of each subsequent Boeing 717 aircraft and will continue to use the
credits as needed to pay for applicable services. The benefit of these credit memos is
being recognized over the term of the leases.

As of December 31, 2004, Midwest
Connects 12 turboprop aircraft were financed under operating leases with an initial
lease term of 12 years and expiration dates of 2008 and 2009. 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. A lessor of five of the aircraft sold
its interest to another party in December 2004. The terms associated with the new leases
were substantially the same as the original leases, except that the new agreement required
a deposit of $2.3 million, which is classified as a security deposit in other assets on
the balance sheet. This deposit is fully refundable at the end of the lease if the Company
meets its obligations.

In the fourth quarter of 1999, the
Company entered into lease agreements to finance the acquisition of five Fairchild
328JETs. The leases run for a term of 16.5 years, with expiration of all leases occurring
in 2016. 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

On April 23, 2001, the Company
completed a $6.3 million financing of a new maintenance facility for Midwest Connect
located at General Mitchell International Airport. Occupancy of the new maintenance
facility began in February 2002. The facility is financed by 32-year, tax-exempt,
variable-rate demand industrial development revenue bonds issued by the City of Milwaukee.
To ensure the tax-exempt status, Milwaukee County is the owner of the facility and
guarantor of principal and interest payments. Interest payments made to bondholders and
amortization of principal are recorded as rent expense.

In October 1998, Midwest Airlines
moved into a newly constructed maintenance facility that is owned by Milwaukee County and
located at General Mitchell International Airport. To finance the $7.9 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 of the
City of Milwaukees outstanding tax-exempt bonds over the 32-year lease term.
Milwaukee County is the owner and guarantor of principal and interest payments.

Rent expense for all operating
leases, excluding landing fees, was $58.5 million, $47.9 million and $40.7 million for
2004, 2003 and 2002, respectively.

44

---

During 2004, the Company recorded
$1.0 million (pre-tax) of aircraft lease expense for three leased DC-9 aircraft and two
leased Beech 1900D aircraft removed from service during the year, and the restructuring of
five Beech 1900D leases. These non-cash expenses were included in the aircraft rentals
line of the Companys statements of operations. The expense reflects future
obligations for these aircraft following their out-of-service dates.

# NOTE 4. FINANCING
AGREEMENTS

Credit Card HoldbackThe Company has agreements with
organizations that process credit card transactions arising from purchases of air travel
tickets by customers of the Company. Credit card processors have financial risk
associated with tickets purchased for travel because, although the processor generally
forwards the cash related to the purchase to the Company soon after the purchase is
completed, the air travel generally occurs after that time, and the processor would have
liability if the Company does not ultimately deliver the travel. The agreement with the
organization that processes MasterCard/Visa transactions was amended in January 2002 to
allow the credit card processor to create and maintain a reserve account that is funded
by retaining cash that it otherwise would deliver to the Company (i.e., restricted
cash). In the third quarter of 2004, the Company did not achieve the monthly
covenants stated in the agreement, and the credit card processor increased the holdback
amount from 80% to 90% in December 2004. In the fourth quarter of 2004, the Company again
did not achieve the quarterly covenant. The Company and credit card processor are
currently in discussions to determine what, if any, adjustments will be made to the
holdback amount as the credit card processor has the right to request up to a 100%
holdback as a result of the covenant violation. As of December 31, 2004, the retained
cash amount was 90% of the credit card processors risk exposure, or approximately
$23.0 million.

The Company also has agreements with
American Express, Diners Club and Discover. Of these credit card processors, only
American Express had retained cash related to credit card processing, totaling $1.0
million. If current industry conditions persist, other credit card processors may require
holdbacks as well. The aggregate amount of the risk exposure of all the processors (other
than amounts under holdback) as of January 31, 2005 was approximately $10.7 million.

AircraftThree 328JETs were originally
financed for a 32-month period beginning in 2001 at fixed rates of interest ranging from
5.58% to 5.92% for the first 26 to 28 months. The interest rates revert to a variable
rate for the last few months of the financing agreement. The loans were scheduled to come
due in August and November 2003 and January 2004, respectively. As part of the aircraft
lease and loan restructuring that occurred in third quarter 2003, the loans were extended
to July 2013 at a fixed rate of interest of 4.0%.

In June 2001, one MD-80 series
aircraft was debt-financed for approximately $8.1 million for seven years at a fixed
interest rate of 7.39%. As part of the aircraft lease and loan restructuring that
occurred in third quarter 2003, a sale and leaseback was completed that resulted in the
Company leasing the aircraft through February 2013.

In second quarter 2002, Midwest
Airlines entered into a loan agreement to fund pre-delivery progress payments to The
Boeing Company for new Boeing 717 aircraft. Midwest Airlines entered into the loan
agreement with Kreditanstalt fur Wiederaufbau Bank (KfW) with the assistance
of Rolls-Royce Deutschland Ltd. & Co. KG (Rolls-Royce). Rolls-Royce
agreed to guarantee this loan agreement on behalf of Midwest Airlines. The loan agreement
provides up to $45.0 million in pre-delivery progress payment financing. As of December
31, 2004, Midwest Airlines owed $13.5 million under the loan agreement. Under a financing
commitment between Midwest Airlines and Boeing Capital Corporation (BCC), at
each aircraft delivery BCC acquires and pays for the aircraft delivered, including
interest accrued on the debt owed KfW, and then leases the aircraft to Midwest Airlines.
At that time, BCC reimburses Midwest Airlines in full for the pre-delivery progress
payments Midwest Airlines has made. To the extent Midwest Airlines originally funded such
payments through KfW, Midwest Airlines uses the amounts reimbursed to repay the related
debt to KfW. To the extent Midwest Airlines originally funded such payments with
operating cash, the amounts reimbursed represent available cash. The loan balance above
reflects the net effect of pre-delivery progress payments and delivery reimbursements as
of December 31, 2004. Interest accrues from the date of borrowing to the aircraft
delivery date, and is included in the final purchase price as capitalized interest. The
interest rate on borrowings under the agreement is LIBOR plus 195 basis points. This debt
has been classified as long-term in the accompanying condensed consolidated balance
sheet. There are no financial covenants associated with this debt obligation.

45

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With the loan agreement with KfW and
the BCC commitment, the Company believes it has requisite financing for the Boeing 717
program. Although BCC is able to terminate its financing commitment if it deems the
Company has experienced a material adverse change and the commitment is subject to other
conditions, the Company does not anticipate that the financing commitment will be
terminated or that the Company will be unable to meet the conditions.

In connection with the final
restructuring agreements with the aircraft lessors and lenders in 2003, the Companys
subsidiaries delivered subordinated promissory notes (the Basic Moratorium Notes)
to the lessors and lenders. Each of the Basic Moratorium Notes was delivered pursuant to
an agreement to amend the existing lease or financing agreements. Each of the Basic
Moratorium Notes constitutes payment in full for regularly scheduled amounts due under
such lease and financing agreements that Midwest Airlines or Midwest Connect failed to
pay to the lessor(s) or lender(s) during the Companys payment moratorium from
February 28, 2003 through August 30, 2003. The aggregate principal amount of the Basic
Moratorium Notes at December 31, 2004 is $7.53 million. Principal and interest (fixed at
10%) on the Basic Moratorium Notes are payable, in arrears, in 36 monthly installments,
which began in July 2004.

HeadquartersIn August 1997, the Company
purchased its headquarters building, which it had previously leased. As part of the
transaction, the Company assumed $3.5 million of long-term debt. The mortgage had an
interest rate of 8.25% and was payable in monthly installments through April 2011. In
November 2003, the Company completed a sale and leaseback of the headquarters buildings.
The initial lease term is 15 years with options to renew the lease for four successive
five-year periods at fair market value lease rates. Monthly payments increase by
approximately 5.6% for years 6-10 and another 7.0% for years 11-15; however, the payments
are recorded on the straight-line basis over the life of the lease. A portion of the
proceeds was used to pay off the outstanding mortgage.

Convertible DebtOn September 29, 2003, the Company
entered into agreements under which it raised financing of approximately $33 million (net
proceeds approximated $31.1 million, after commissions and expenses). The financing
included two components: the sale of $25 million in convertible senior secured notes and
the sale of 1,882,353 shares of the Companys common stock having an aggregate
purchase price of approximately $8 million. The equity transaction is discussed more
fully in Note 6. Most of the Companys unencumbered assets, including aircraft,
spare parts and landing slots, were pledged as security to the convertible note holders.
The Company sold the convertible senior secured notes and the common stock in private
placements to certain qualified institutional investors and accredited investors.

The convertible senior secured notes
bear interest at 6.75% and mature on October 1, 2008. The notes are secured by certain
assets of the Company and its subsidiaries in accordance with a Security Agreement and by
a Mortgage granted by Midwest Connect. During 2004, approximately $0.2 million of the
debt was converted to stock at the option of the note holder. The notes are generally
convertible at any time at the option of the note holders into shares of common stock of
the Company at an initial conversion price of $5.00 per share, which is subject to
adjustment pursuant to certain anti-dilution provisions. The note holders may not convert
any portion of the outstanding and unpaid principal of the notes to the extent that,
after giving effect to such conversion, the note holder (together with such note holders
affiliates) would beneficially own in excess of 4.99% or 9.99%, as the case may be for
the respective note holder, of the number of shares of common stock outstanding
immediately after giving effect to such conversion. A note holder may waive the 4.99%
limitation with such waiver being effective on the 61st calendar day after the Company
receives notice of the waiver.

46

---

The terms of the agreements specify
that the Company is subject to certain operating restrictions that, among other things,
limit the Companys ability to sell assets and make loans. In addition, the Company
may not, except as required under certain contracts, plans or arrangements, redeem,
declare or pay any cash dividends or distributions on common stock without the consent of
the note holders. The agreements require the Company to maintain a minimum monthly
unrestricted cash balance of $37.5 million. In addition, the agreements also specify
customary events of default for debt securities of this type, including, among others,
failure to make payments when due, breaches of covenant, breaches of representations and
warranties, cross-default to other indebtedness, bankruptcy and insolvency defaults, and
unsatisfied judgment defaults. If the Company breaches a covenant, some or all of the
convertible notes may be subject to redemption.

Future maturities of long-term debt
on all debt obligations, including the Basic Moratorium Note, debt related to the 328JET
aircraft and the convertible notes for the next five years are as follows (in thousands):

|                        | 
|----------------------- | 
|Year ended December 31, | 
|2005                    | 
|2006                    | 
|2007                    | 
|2008                    | 
|2009                    | 
|2010 and thereafter     | 

# NOTE 5. NET LOSS PER
SHARE

Reconciliations of the numerator and
denominator of the basic and diluted net loss per share computations are summarized as
follows (in thousands, except per share amounts):

|                                                  | 2004 |  | 2003 |         | 2002 |  
|------------------------------------------------- | ---- |  | ---- | ------- | ---- | -
|Net Loss Per Share - Basic:                       |      |  |      |         |      |  
|Net loss (numerator)                              |      |  | $    | (43,132 | )    | $
|                                                  |      |  |      |         |      |  
|Weighted average shares outstanding (denominator) |      |  |      | 17,431  |      |  
|                                                  |      |  |      |         |      |  
|Net loss per share - basic                        |      |  | $    | (2.47   | )    | $
|                                                  |      |  |      |         |      |  
|Net Loss Per Share - Diluted:                     |      | 
|Net loss (numerator)                              |      |  | $    | (43,132 | )    | $
|                                                  |      |  |      |         |      |  
|Weighted average shares outstanding (denominator) |      |  |      | 17,431  |      |  
|Effect of dilutive securities:                    |      | 
|Stock options (1)(2)(3)                           |      |  |      | --      |      |  
|Convertible debt (4)                              |      |  |      | --      |      |  
|                                                  |      |  |      |         |      |  
|Weighted average shares outstanding assuming      |      | 
|dilution (denominator)                            |      |  |      | 17,431  |      |  
|                                                  |      |  |      |         |      |  
|Net loss per share - diluted                      |      |  | $    | (2.47   | )    | $
|                                                  |      |  |      |         |      |  

|(1) | Stock
options outstanding under the 1995 Stock Option Plan of 34 and 20 were
               excluded from the calculation for 2004 and 2003 respectively, as their
effect                was anti-dilutive.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Stock
options outstanding under the 2003 All-Employee Stock Option Plan of 235
               and 17, respectively, were excluded from the calculation for 2004 and 2003
               respectively, as their effect was anti-dilutive.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Shares
issuable under the 1995 Stock Plan for Outside Directors of 44 and 22                were
excluded from the calculation for 2004 and 2003 respectively, as their
               effect was anti-dilutive.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Warrants
and convertible senior secured notes issued by the Company were                excluded
from the calculation 2004 and 2003 respectively, as their effect was
               anti-dilutive.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In connection with the final
restructuring agreements with the aircraft lessors and lenders, the Company issued
warrants to certain lessors and lenders that currently give the holders the right to
purchase in the aggregate 1,571,467 shares of the Companys common stock at an
exercise price per share of $4.72. The warrants expire in August 2013. None of the
warrants had been exercised as of December 31, 2004.

47

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# NOTE 6.
SHAREHOLDERS EQUITY

During second quarter 2002, the
Company generated gross proceeds of $21.9 million through the private placement of
1,675,000 shares of the Companys common stock to qualified institutional investors
at $13.09 per share. Net proceeds, after commissions and expenses, of $20.5 million were
used to reduce indebtedness and provide general working capital.

During fourth quarter 2003, the
Company generated gross proceeds of $8.0 million through the private placement of
1,883,353 shares of the Companys common stock to qualified institutional investors
at $4.25 per share. Net proceeds, after commissions and expenses, of $7.5 million were
used to reduce indebtedness and provide general working capital.

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 holder to purchase 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 the
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% threshold to not less than 10%. The Rights expire in 2006.

In connection with the final
restructuring agreements with the aircraft lessors and lenders, the Company issued
warrants to certain lessors and lenders that currently give the holders the right to
purchase in the aggregate 1,571,467 shares of the Companys common stock at an
exercise price per share of $4.72. The weighted average fair value of the warrants at the
grant date was $2.89. The warrants expire in August 2013. None of the warrants had been
exercised as of December 31, 2004. The assumptions used to calculate the fair value of the
warrants were comparable to the weighted average assumptions used to calculate the fair
value of options issued under the Companys stock option plans under SFAS No 123,
Accounting for Stock-Based Compensation (SFAS 123).

Under the Companys 1995 Stock
Option Plan, the Compensation Committee of the Board of Directors may grant options, at
its discretion, to certain employees to purchase shares of common stock. An aggregate of
2,548,900 shares of common stock is reserved for issuance under the Plan, of which 128,011
shares are available for future grants at December 31, 2004. 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 at the rate of 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.

Under the Companys 2003
All-Employee Stock Option Plan, the Compensation Committee of the Board of Directors may
grant options, at its discretion, to certain non-represented employees and each union may
grant options, at its discretion, to certain represented employees to purchase shares of
common stock. An aggregate of 1,551,741 shares of common stock is reserved for issuance
under the Plan, of which 322,224 shares are available for future grants as of December 31,
2004. Granted options for non-represented employees become exercisable at the rate of 33?%
immediately upon the date of grant, 33?% after the first year and the remaining 33?% after
the second year. Options for represented employees become exercisable in varying
increments as determined by each union, such that no more than 33?% of the options
allocated to a represented group become exercisable immediately upon the date of grant.
All options granted under this Plan will expire no later than August 21, 2013.

48

---

Transactions with respect to the
Plans where the exercise price was equal to the market price on the date of grant are
summarized as follows:

|                                         | Shares |  | Weighted
Average Price
|---------------------------------------- | ------ |  | ----------------------
|Options outstanding at December 31, 2001 |        |  |                       
|Granted                                  |        |  |                       
|Exercised                                |        |  |                       
|Forfeited                                |        |  |                       
|                                         |        |  |                       
|Options outstanding at December 31, 2002 |        |  |                       
|Granted                                  |        |  |                       
|Exercised                                |        |  |                       
|Forfeited                                |        |  |                       
|                                         |        |  |                       
|Options outstanding at December 31, 2003 |        |  |                       
|Granted                                  |        |  |                       
|Exercised                                |        |  |                       
|Forfeited                                |        |  |                       
|                                         |        |  |                       
|Options outstanding at December 31, 2004 |        |  |                       
|                                         |        |  |                       
|                                         |        | 

Transactions with respect to the
Plans where the exercise price was less than the market price on the date of grant are
summarized as follows:

|                                         | Shares |  | Weighted
Average Price
|---------------------------------------- | ------ |  | ----------------------
|Options outstanding at December 31, 2001 |        |  |                       
|Options outstanding at December 31, 2002 |        |  |                       
|Granted                                  |        |  |                       
|Exercised                                |        |  |                       
|Forfeited                                |        |  |                       
|                                         |        |  |                       
|Options outstanding at December 31, 2003 |        |  |                       
|Granted                                  |        |  |                       
|Exercised                                |        |  |                       
|Forfeited                                |        |  |                       
|                                         |        |  |                       
|Options outstanding at December 31, 2004 |        |  |                       
|                                         |        |  |                       

Options exercisable with their
weighted average exercise price as of December 31, 2004, 2003 and 2002 for options where
the exercise price was equal to the market price on the date of grant were: 1,595,145
options at $19.64, 1,309,985 options at $21.58 and 1,025,027 options at $22.08,
respectively.

Options exercisable with their
weighted average exercise price as of December 31, 2004, 2003 and 2002 for options where
the exercise price was less than the market price on the date of grant were: 924,748
options at $2.89, 491,364 options at $2.89 and not applicable for 2002.

The following table summarizes
information concerning options outstanding at December 31, 2004:

|Range of Exercise Prices | Number
Outstanding |  | Weighted
Average
Remaining
Contractual
Life |           | Weighted Average
Exercise Price | Options
Exercisable |          
|------------------------ | ------------------ |  | ------------------------------------------- | --------- | ------------------------------- | ------------------- | ---------
|$0.00-$4.99              |                    |  |                                             | 1,760,050 |                                 |                     | 8.7 years
|$5.00-$9.99              |                    |  |                                             | 143,000   |                                 |                     | 1.2 years
|$10.00-$14.99            |                    |  |                                             | 55,700    |                                 |                     | 4.2 years
|$15.00-$19.99            |                    |  |                                             | 788,814   |                                 |                     | 5.7 years
|$20.00-$24.99            |                    |  |                                             | 196,200   |                                 |                     | 5.1 years
|$25.00-$29.99            |                    |  |                                             | 212,400   |                                 |                     | 4.2 years
|$30.00-$34.99            |                    |  |                                             | 200,050   |                                 |                     | 3.2 years
|                         |                    |  |                                             |           |                                 |                     |          
|Options outstanding at   |                    | 
|December 31, 2004        |                    |  |                                             | 3,356,214 |                                 |                     | 6.7 years
|                         |                    |  |                                             |           |                                 |                     |          

49

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# NOTE 7. INCOME TAXES

The income tax credit for the years
ended December 31, 2004, 2003 and 2002 consisted of the following (in thousands):

|                             | 2004 |  | 2003 |        | 2002 |  
|---------------------------- | ---- |  | ---- | ------ | ---- | -
|Current (credit) provision:  |      |  |      |        |      |  
|Federal                      |      |  | $    | --     |      | $
|State                        |      |  |      | --     |      |  
|                             |      |  |      |        |      |  
|                             |      |  |      | --     |      |  
|                             |      |  |      |        |      |  
|Deferred (credit) provision: |      | 
|Federal                      |      |  |      | (3,824 | )    |  
|State                        |      |  |      | (229   | )    |  
|                             |      |  |      |        |      |  
|                             |      |  |      | (4,053 | )    |  
|                             |      |  |      |        |      |  
|Income tax credit            |      |  | $    | (4,053 | )    | $
|                             |      |  |      |        |      |  

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

|                                           | 2004 |  | 2003 |       | 2002 | 
|------------------------------------------ | ---- |  | ---- | ----- | ---- | 
|Credit at statutory U.S. tax rates         |      |  |      | (35.0 | )%   | 
|State income taxes, net of federal benefit |      |  |      | (2.0  | )    | 
|Valuation allowance                        |      | 
|                                           |      |  |      | 28.4  |      | 
|Other, net                                 |      |  |      | --    |      | 
|                                           |      |  |      |       |      | 
|Income tax credit                          |      |  |      | (8.6  | )%   | 
|                                           |      |  |      |       |      | 

Deferred tax assets and liabilities
resulting from temporary differences comprise the following at December 31 (in thousands):

|                                             | 2004 |  | 2003 |        
|-------------------------------------------- | ---- |  | ---- | -------
|Current deferred income tax assets           |      |  |      |        
|(liabilities) attributable to:               |      | 
|Frequent flyer                               |      |  | $    | 2,749  
|Accrued liabilities                          |      |  |      | 5,031  
|Maintenance expense liability                |      |  |      | --     
|Other                                        |      |  |      | (456   
|                                             |      |  |      |        
|Net current deferred tax assets              |      |  | $    | 7,324  
|                                             |      |  |      |        
|Noncurrent deferred income tax               |      | 
|(liabilities) assets attributable to:        |      | 
|Excess book basis over tax basis of property |      |  | $    | (42,595
|Maintenance expense liability                |      |  |      | 786    
|Frequent flyer                               |      |  |      | 449    
|Pension liability                            |      |  |      | 4,521  
|Deferred revenue - new aircraft program      |      |  |      | 8,694  
|Federal net operating losses                 |      |  |      | 26,040 
|State net operating losses                   |      |  |      | 9,200  
|AMT carryforwards                            |      |  |      | 2,370  
|Valuation allowance                          |      |  |      | (21,579
|Other                                        |      |  |      | 4,137  
|                                             |      |  |      |        
|Net noncurrent deferred tax liabilities      |      |  | $    | (7,977 
|                                             |      |  |      |        

As of December 31, 2004, the Company
has state net operating losses of approximately $187 million, which will begin to expire
in 2005. The Company recorded a valuation allowance on the state net operating losses of
$3.1 million and $2.7 million in 2004 and 2003, respectively. As of December 31, 2004, the
Company has recorded federal net operating losses of $74.4 million, which will begin to
expire in 2023. Beginning with the second quarter of 2004, the Company no longer records
income tax benefit on losses due to the accumulated losses and the Companys
inability to offset net operating losses against deferred tax liabilities. The Company
recorded a valuation allowance on the federal net operating losses of $13.1 million in
2004.

50

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Income taxes have been settled with
the Internal Revenue Service (IRS) for all years through 2002. As a result of
the completion of the examinations, the Company made a payment of approximately $4.3
million in 2004. The Company believes adequate provision for all outstanding issues has
been made for all open years.

In connection with the Companys
initial public offering in 1995 (the Offering), the Company, Midwest, Midwest
Connect 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s assets at the time of the Offering, and
as a result, the tax bases of Midwests 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 it would have 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 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s assets.

# NOTE 8. COMMITMENTS AND
CONTINGENCIES

In February 1997, Midwest Airlines
agreed to pay $9.25 million over 15 years for the naming rights to the Midwest Airlines
Center, an 800,000-square-foot convention center in Milwaukee that opened in July 1998. As
of December 31, 2004, the Company had remaining cash payments on this commitment of $4.1
million.

The Company placed a firm order for
25 new Boeing 717 aircraft, with purchase rights for an additional 25 aircraft. The firm
order is valued at $940 million, with a remaining value of approximately $300 million
relating to undelivered aircraft as of December 31, 2004. Under an amended purchase
agreement, delivery of the aircraft began in February 2003 and was to continue into 2005
at a rate of one aircraft every month. In July 2003, Midwest Airlines announced that it
was further amending the delivery schedule for the Boeing 717 aircraft. Midwest Airlines
received one aircraft per month through March 2004 and then one per quarter for the
remainder of 2004 and 2005. Boeing has announced that it will discontinue manufacturing
Boeing 717 aircraft in 2006. The Company is currently in discussions with Boeing regarding
the 2006 delivery schedule and the purchase rights for an additional 25 aircraft.

In April 2001, Midwest Connect signed
a memorandum of understanding placing firm orders for 20 new Embraer regional jets, with
options to purchase 20 additional aircraft. The firm order is valued at $400 million.
Midwest Connect plans to use the new Embraer regional jets to expand service in existing
and new markets. Midwest Connect believes long-term financing will be difficult to obtain
given current industry conditions and Company financial results, and for these reasons,
Midwest Connect reached agreement with Embraer to defer acquisition of these aircraft
until July 2006. The contract has been amended to reflect this agreement. Midwest Connect
will not incur any cost or face claims for breach of contract in relation to the deferral.

51

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As a result of the restructuring of
lease and debt agreements described in Note 4, the Company has significantly lowered its
obligations compared with the obligations under the previous lease and debt agreements.
Included in the restructured agreements are clauses that would make the Companys
obligations, under certain default situations, increase to the amounts under the previous
agreements. The amount of such contingent obligation of the Company is approximately $24.7
million as of December 31, 2004.

The Company is party to routine
litigation incidental to its business. Management believes that none of this litigation is
likely to have a material adverse effect on the Companys consolidated financial
statements. The more significant legal proceedings are discussed below.

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

In December 2003, Dornier Aviation
(North America) Inc. Liquidating Trust filed litigation against Skyway, disputing the
validity of $3.5 million of credit memorandums used by the Company to purchase aircraft
parts and services. The credit memorandums obtained by the Company were associated with
the acquisition of the Fairchild 328JET aircraft and through subsequent resolution of
Dorniers cancellation of the 428JET program. The Company contends the credit
memorandums were properly applied and has not recorded any reserve in respect to this
matter.

# NOTE 9. DERIVATIVE
FINANCIAL INSTRUMENTS

The Company accounts for its fuel
hedge derivative instruments as cash flow hedges, as defined in SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities and the
corresponding amendments under SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities. Therefore, all changes in the fair value
of the derivative instruments that are considered effective are recorded in other
comprehensive income until the underlying hedged fuel is consumed, when they are
reclassified to the income statement as an offset of fuel expense. The Company
reclassified $1.1 million and $1.5 million to the income statement in 2003 and 2002,
respectively, as an offset to fuel expense when the fuel hedges from 2002 expired.

During 2004, the Company began
hedging a portion of the price risk related to anticipated future jet fuel requirements,
primarily through a collar option strategy. As of December 31, 2004, the Company had fuel
hedge collars in place covering a percentage of the total fuel consumption for 2005. The
collars for first quarter 2005 cover approximately 25% of the total estimated fuel
consumption with an average floor price of $1.37 per gallon and average ceiling price of
$1.60 per gallon, which includes into-plane costs. There are collars in place that cover
18.0%, 13.6% and 9.2% of the estimated fuel consumption for second, third and fourth
quarters of 2005, respectively. Ceiling prices are set at $1.39, $1.40 and $1.40 per
gallon and floor prices are set at $1.19, $1.20 and $1.20 per gallon for the second, third
and fourth quarter of 2005, respectively. In 2004, the Company expensed $0.3 million due
to the price of jet fuel falling below the floor price of the collar. As of December 31,
2004, the Company recorded $0.8 million in current other accrued liabilities as a
potential liability for future fuel prices that may fall outside of the collar based on
the anticipated cash flows from the fuel hedge collars.

52

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# NOTE 10. RETIREMENT AND
BENEFIT PLANS

Qualified Defined Benefit PlanIn 2004 and 2003, Midwest Airlines
had one qualified defined benefit plan: the Pilots Supplemental Pension Plan. This
plan provides retirement benefits to Midwest Airlines pilots represented by their
collective bargaining agreement.

Nonqualified Defined Benefit PlansNonqualified defined benefit plans
consist of an Executive Supplemental Plan and a Pilots Nonqualified
Supplemental Pension Plan. The Executive Supplemental Plan provides annuity
benefits for salary in excess of IRS salary limits that could not be applied in the
qualified Salaried Employees Retirement Plan. The Salaried Employees Plan was
terminated as of March 31, 2000, however benefits under the Executive Supplemental Plan
remain frozen while the Company evaluates alternatives. The other Midwest Airlines
nonqualified defined benefit plan is the Pilots Nonqualified Supplemental Pension
Plan. This plan provides Midwest Airlines pilots with annuity benefits for salary in
excess of IRS salary limits that cannot be covered by the qualified Pilots Supplemental
Pension Plan.

The Company uses a December 31
measurement date for purposes of calculations of plan assets and obligations and all other
related measurements.

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

|                                            | Midwest 
Qualified Defined
Benefit Plans |  | Midwest
Nonqualified Defined
Benefit Plans |       
|------------------------------------------- | ---------------------------------------- |  | ------------------------------------------ | ------
|
|Change in Benefit Obligation                |                                          |  |                                            |       
|Net benefit obligation at beginning of year |                                          |  | $                                          | 17,743
|Service cost                                |                                          |  |                                            | 1,167 
|Interest cost                               |                                          |  |                                            | 986   
|Plan amendments                             |                                          |  |                                            | --    
|Actuarial loss                              |                                          |  |                                            | 915   
|Benefits paid                               |                                          |  |                                            | (41   
|                                            |                                          |  |                                            |       
|Net benefit obligation at end of year       |                                          |  | $                                          | 20,770
|                                            |                                          |  |                                            |       

|                                          | Midwest 
Qualified Defined
Benefit Plans |  | Midwest
Nonqualified Defined
Benefit Plans |        
|----------------------------------------- | ---------------------------------------- |  | ------------------------------------------ | -------
|
|Change in Plan Assets                     |                                          |  |                                            |        
|Fair value of assets at beginning of year |                                          |  | $                                          | 3,383  
|Actual return on plan assets              |                                          |  |                                            | 299    
|Employer contributions                    |                                          |  |                                            | 436    
|Gross benefits paid                       |                                          |  |                                            | (41    
|                                          |                                          |  |                                            |        
|Fair value of plan assets at end of year  |                                          |  | $                                          | 4,077  
|                                          |                                          |  |                                            |        
|                                          |                                          |  |                                            |        
|Funded status at end of year              |                                          |  | $                                          | (16,693
|Unrecognized net actuarial loss           |                                          |  |                                            | 9,312  
|Unrecognized prior service cost           |                                          |  |                                            | 2,989  
|                                          |                                          |  |                                            |        
|Accrued benefit liability                 |                                          |  | $                                          | (4,392 
|                                          |                                          |  |                                            |        
|Weighted-average assumptions              |                                          | 
|Discount rate                             |                                          |  |                                            | 5.75   
|Expected return on plan assets            |                                          |  |                                            | 8.00   
|Rate of compensation increase             |                                          |  |                                            | 6.30   

53

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Amounts recognized in the balance
sheet consist of:

|                                        | Midwest 
Qualified Defined
Benefit Plans |  | Midwest
Nonqualified Defined
Benefit Plans |       
|--------------------------------------- | ---------------------------------------- |  | ------------------------------------------ | ------
|
|Amounts recognized in the balance sheet |                                          |  |                                            |       
|Accrued benefit liability               |                                          |  | $                                          | (4,392
|Additional minimum liability            |                                          |  |                                            | --    
|Intangible asset                        |                                          |  |                                            | --    
|Accumulated other comprehensive income  |                                          |  |                                            | --    
|                                        |                                          |  |                                            |       
|Net amount recognized at end of year    |                                          |  | $                                          | (4,392
|                                        |                                          |  |                                            |       

The accumulated benefit obligation
for all defined benefit pension plans was $7.4 million and $5.5 million at December 31,
2004 and 2003, respectively.

|                               | December 31 | 
|------------------------------ | ----------- | 
|
|Projected benefit obligation   |             | 
|Accumulated benefit obligation |             | 
|Fair value of plan assets      |             | 

The net periodic benefit cost of
defined benefit pension plans for the years ending December 31, 2004, 2003 and 2002,
respectively, includes the following (in thousands):

|                                        | Midwest 
Qualified Defined
Benefit Plans |  | Midwest
Nonqualified Defined
Benefit Plans |      
|--------------------------------------- | ---------------------------------------- |  | ------------------------------------------ | -----
|
|Components of Net Periodic Benefit Cost |                                          |  |                                            |      
|Service cost                            |                                          |  | $                                          | 1,167
|Interest cost                           |                                          |  |                                            | 986  
|Expected return on assets               |                                          |  |                                            | (319 
|Amortization of:                        |                                          | 
|Prior service cost                      |                                          |  |                                            | 310  
|Actuarial loss (gain)                   |                                          |  |                                            | 329  
|                                        |                                          |  |                                            |      
|Total net periodic benefit cost         |                                          |  | $                                          | 2,473
|                                        |                                          |  |                                            |      

Assumptions for the above table
include a discount rate of 6.00%, 6.75% and 7.25% for 2004, 2003 and 2002, respectively.
The rate of compensation increase for all qualified defined benefit plans was 6.30%, 5.44%
and 5.44% for 2004, 2003 and 2002. The rate of compensation increase for all nonqualified
defined benefit plans was 6.30%, 4.38% and 4.38% for 2004, 2003 and 2002. The expected
return on plan assets for all defined benefit plans was 8.00%, 9.00% and 9.00% for 2004,
2003 and 2002.

The Company offers severance
arrangements to certain Midwest Airlines pilots. The liability under this plan at December
31, 2004 was $5.1 million.

54

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Postretirement Health
Care and Life Insurance BenefitsMidwest Airlines 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 non-contributory for
current retirees, and are contributory for most future retirees.

The following table sets forth the
status of the plans as of December 31, 2004 and 2003 respectively (in thousands):

|                                            | 2004 |  | 2003 |        
|------------------------------------------- | ---- |  | ---- | -------
|Change in Benefit Obligation                |      |  |      |        
|Net benefit obligation at beginning of year |      |  | $    | 10,777 
|Service cost                                |      |  |      | 801    
|Interest cost                               |      |  |      | 590    
|Plan amendments                             |      |  |      | --     
|Actuarial loss                              |      |  |      | 484    
|Curtailments                                |      |  |      | (1,186 
|Gross benefits paid                         |      |  |      | (52    
|                                            |      |  |      |        
|Net benefit obligation at end of year       |      |  | $    | 11,414 
|                                            |      |  |      |        
|Change in Plan Assets                       |      | 
|Fair value of assets at beginning of year   |      |  | $    | --     
|Employer contributions                      |      |  |      | 52     
|Gross benefits paid                         |      |  |      | (52    
|                                            |      |  |      |        
|Fair value of plan assets at end of year    |      |  | $    | --     
|                                            |      |  |      |        
|Funded status at end of year                |      |  | $    | (11,414
|Unrecognized net actuarial loss             |      |  |      | 3,197  
|Unrecognized prior service credit           |      |  |      | (339   
|                                            |      |  |      |        
|Accrued benefit liability recognized at     |      | 
|end of year                                 |      |  | $    | (8,556 
|                                            |      |  |      |        
|Weighted-average assumptions                |      | 
|Discount rate                               |      |  |      | 5.75   
|Rate of compensation increase               |      |  |      | 4.57   

The net periodic benefit cost of
postretirement health care and life insurance benefits for the years ending December 31,
2004, 2003 and 2002, respectively includes the following (in thousands):

|                                        | 2004 |  | 2003 |       | 2002 |  
|--------------------------------------- | ---- |  | ---- | ----- | ---- | -
|Components of Net Periodic Benefit Cost |      |  |      |       |      |  
|Service cost                            |      |  | $    | 801   |      | $
|Interest cost                           |      |  |      | 590   |      |  
|Amortization of:                        |      | 
|Prior service costs                     |      |  |      | (24   | )    |  
|Actuarial loss                          |      |  |      | 83    |      |  
|                                        |      |  |      |       |      |  
|Total net periodic benefit cost         |      |  | $    | 1,450 |      | $
|                                        |      |  |      |       |      |  
|FAS 88 Charges:                         |      | 
|Special termination benefit charge      |      |  |      | --    |      |  
|(credit)                                |      | 
|Curtailment charge (credit)             |      |  |      | (98   | )    |  
|Settlement charge (credit)              |      |  |      | --    |      |  
|Total net periodic benefit cost         |      |  | $    | 1,352 |      | $
|                                        |      |  |      |       |      |  

Assumptions for the above table
include a discount rate of 6.00%, 6.75% and 7.25% for 2004, 2003 and 2002, respectively.
The rate of compensation increase was 4.57%, 4.38% and 4.38% for 2004, 2003 and 2002. As
the Company is in an unfunded position for this plan, there is no expected return on plan
assets. A 9.00% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2005. The rate was assumed to decrease 1% per year to 5.00% for
2009 and remain at that level thereafter. A one-percentage-point change in assumed health
care cost trend rates would not have a material effect on the financial statements.

55

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The preset limit on the
Companys annual payment toward retiree healthcare has been reached; all costs above
this preset cap are paid by retirees.

# Plan Assets

The fair value of plan assets for
these plans is $4,076,841 and $3,383,134 at the end of 2004 and 2003, respectively. The
expected long-term rate of return on these plan assets was 8.00% and 9.00% in 2004 and
2003, respectively. On a go-forward basis, the expected rate of return will be 8.00%.

The return on plan assets reflects
the weighted average of the expected long-term rates of return for the broad categories of
investments held in the plan. The expected long-term rate of return is adjusted when there
are fundamental changes in expected returns on the plan investments; this adjustment takes
into account consideration from the actuary regarding long-term market conditions and
investment management performance.

The asset allocation for the
Companys U.S. pension plans at the end of 2004 and 2003, and the target allocation
for 2005, by asset category, follows:

|                          | Target Allocation | Percentage of Plan Assets
at Year End | 
|------------------------- | ----------------- | ------------------------------------- | 
|
|Equity securities         |                   |                                       | 
|Fixed income              |                   |                                       | 
|Cash and cash equivalents |                   |                                       | 
|Other                     |                   |                                       | 
|                          |                   |                                       | 
|Total                     |                   |                                       | 
|                          |                   |                                       | 

# Plan Investment Strategy

The Qualified Plan has a Fiduciary
Committee that oversees the investment of the assets of the Plan. The Fiduciary Committee
has created an investment policy for the assets of the Plan. The basic investment
strategy for plan assets provides that over the investment horizon established in the
policy aggregate Plan assets will meet or exceed:

| | An
absolute annual rate of return of 8%, based on the blended weighted-average return on
equity and fixed  income securities based on the target allocation.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | An
absolute real return (excess of inflation) of 5%.
|- | ----------------------------------------------------

| | The
return of a balanced market index comprised of 75% S&P 500 Stock Index and 25% Lehman
Brothers Intermediate Government/Credit Bond Index.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------

The investment goals above are the
objectives of the aggregate Plan, and are not meant to be imposed on each investment
account (if more than one account is used). The goal of each investment manager, over the
investment horizon, shall be to:

| | Meet
or exceed the market index, or blended market index, selected and agreed upon by the Plan
Fiduciary Committee that most closely corresponds to the style of investment management.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Display
an overall level of risk in the portfolio that is consistent with the risk associated
with the benchmark specified above. Risk will be measured by the standard deviation of
quarterly returns.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

56

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Specific investment goals and
constraints for each investment manager are incorporated as part of the investment policy.

# Expected Cash Flows

Information about expected cash flows
for the pension and postretirement benefit plans follows:

|Employer Contributions
(in thousands) | Pension
Benefits | Other
Benefits
|------------------------------------- | ---------------- | --------------
|2005 (expected) to plan trusts        |                  |               
|2005 (expected) to plan participants  |                  |               
|                                      |                  |               

Expected future benefit payments for
the next five years are as follows (in thousands):

|                        | Pension
Benefits | Other
Benefits
|----------------------- | ---------------- | --------------
|Year ended December 31, |                  |               
|2005                    |                  |               
|2006                    |                  |               
|2007                    |                  |               
|2008                    |                  |               
|2009                    |                  |               
|2010 and thereafter     |                  |               

Qualified Defined
Contribution PlansMidwest Airlines makes monthly
contributions to substantially all employees accounts under the Retirement Account
Plan. Company contributions vary based on the age of the employee. In addition, under the
Retirement Account Plan, some employees who were participants in the terminated Midwest
Airlines Pension Plan on March 31, 2000 may receive additional transition benefits each
year.

Company contributions under the
Retirement Account Plan are limited to the extent required by tax provisions. To the
extent contributions to the Retirement Account Plan are limited under tax law, any excess
will be paid pursuant to supplemental retirement arrangements. The amounts expensed and
reflected in the accompanying consolidated statements of operations were $4.0 million,
$3.8 million and $4.2 million, in 2004, 2003 and 2002, respectively.

The Company has two voluntary defined
contribution investment plans covering substantially all employees. Under these plans, the
Company matches a portion of an employees contributions if certain thresholds are
met. Amounts expensed and reflected in the accompanying consolidated statements of
operations were $0.1 million, $0.1 million and $0.2 million in 2004, 2003 and 2002,
respectively. Effective October 1, 2001, Midwest Airlines temporarily suspended matching
contributions to its 401(k) program following the events of September 11. In 2002, Midwest
Airlines reinstated matching contributions using a targeted profitability measure. Midwest
Connect matches 25% of employee contributions up to 10% of an employees salary. In
addition, Midwest Connect will increase matching contributions above that level if
targeted profitability measures are met.

Profit Sharing PlansThe Company has three profit sharing
plans: an employee profit sharing plan for substantially all employees of Midwest
Airlines, an employee profit sharing plan for substantially all employees of Midwest
Connect, and an Annual Incentive Plan for key management employees. Company contributions
for all plans are based primarily on achieving specified levels of profitability. The
Company expensed $0 under these plans during 2004, 2003 and 2002, respectively. During
2003, the Company announced an income-sharing plan that replaces these plans.

57

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On December 8, 2003, the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was
signed into law. The Act introduced a prescription drug benefit program under Medicare as
well as a federal subsidy to sponsors of retiree health care benefit plans. Certain
accounting issues raised by the Act, such as how to account for the federal subsidy, are
not explicitly addressed by the Financial Accounting Standards Board (FASB)
Statement No. 106, Employers Accounting for Postretirement Benefits Other Than
Pensions. The FASB issued FASB Staff Position (FSP) No. FAS 106-2,
Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (FSP No. 106-2), that allows
sponsors to elect to defer recognition of the effects of the Act to await guidance from
various governmental and regulatory agencies concerning the requirements that must be met
to obtain these cost reductions, as well as the manner in which such savings should be
measured. In accordance with FSP No. 106-2, the Company has evaluated the effects of the
Act and has determined that the federal subsidy would not be material to the Company.
Accordingly, the financial statements do not reflect the effects of the Act.

# NOTE 11. ACCOUMULATED
OTHER COMPREHENSIVE LOSS

The Company includes changes in the
fair value of certain derivative financial instruments that qualify for hedge accounting
and changes in minimum pension liabilities in comprehensive loss. Comprehensive loss was
$43.8 million, $13.9 million and $10.1 million for 2004, 2003 and 2002, respectively.
Accumulated other comprehensive loss includes $0.8 million for unrealized losses on fuel
collars and $0.1 million (net of tax) for additional minimum pension liability.

# NOTE 12. SETTLEMENT OF
ARBITRATION

Midwest Connect currently operates 10
32-passenger Fairchild 328JET regional jets. In September 2001, Midwest Connect settled
its arbitration with Fairchild Dornier GmbH (Fairchild) over the cancellation
of the 428JET program. In the first quarter of 2002, the Company recorded as other income
$39.5 million (pre-tax) associated with the settlement.

# NOTE 13. SEGMENT
REPORTING

Midwest Airlines and Midwest Connect
constitute the two 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 1.

As of December 31, 2004, Midwest
Airlines offered jet service to 23 cities throughout the United States. As of December 31,
2004, Midwest Airlines operated a fleet of 30 aircraft  17 Boeing 717s, 11 MD-81/82s
and two MD-88s.

Midwest Connect offers point-to-point
service in select markets and increases traffic for Midwest Airlines by providing
passengers with connecting service to Midwest Airlines flights. As of December 31, 2004,
Midwest Connect operated a fleet of 12 Beech 1900D turboprop aircraft and 10 Fairchild
328JETs.

58

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Revenue for passengers who travel on
both carriers within a single itinerary is allocated to each entity based on a formula
that is dependent on the fare type paid by the passenger. There were 282,184, 207,084 and
182,095 passengers in 2004, 2003 and 2002, respectively, under the aforementioned pricing
agreement.

Although Midwest Connect is
independent from an operational perspective, Midwest Airlines performs a number of
services for Midwest Connect including, but not limited to, aircraft scheduling, pricing,
reservations, yield management, advertising and fuel procurement. Midwest Connect is
charged a marketing service fee for these services based on a percentage of the revenue
for passengers who travel exclusively on Midwest Connect and a fixed per passenger fee for
passengers who connect between the carriers. These service charges comprise a majority of
the intercompany revenue and expense between the two segments for the years ended December
31, 2004, 2003 and 2002.

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

59

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Reportable segments, as defined by
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision-maker
in deciding resource allocation and assessing performance.

|2004                                       | Midwest
Airlines | Midwest
Connect | Elimination | Consolidated
|------------------------------------------ | ---------------- | --------------- | ----------- | ------------
|Operating revenues                         |                  |                 | $           | 342,979     
|Operating loss                             |                  |                 |             | (39,257     
|Depreciation and amortization expense      |                  |                 |             | 12,908      
|Interest income                            |                  |                 |             | 2,090       
|Interest expense                           |                  |                 |             | 3,471       
|Loss before income tax credit              |                  |                 |             | (40,651     
|Income tax credit                          |                  |                 |             | (2,655      
|Net loss                                   |                  |                 |             | (37,996     
|Total assets                               |                  |                 |             | 324,385     
|Capital  expenditures  (including purchase |                  |                
|deposits on flight equipment)              |                  |                 |             | 8,442       

|2003                                       | Midwest
Airlines | Midwest
Connect | Elimination | Consolidated
|------------------------------------------ | ---------------- | --------------- | ----------- | ------------
|Operating revenues                         |                  |                 | $           | 319,242     
|Operating loss                             |                  |                 |             | (22,799     
|Depreciation and amortization expense      |                  |                 |             | 16,774      
|Interest income                            |                  |                 |             | 1,154       
|Interest expense                           |                  |                 |             | 2,265       
|Loss before income tax credit              |                  |                 |             | (12,942     
|Income tax credit                          |                  |                 |             | (4,529      
|Net loss                                   |                  |                 |             | (8,413      
|Total assets                               |                  |                 |             | 356,498     
|Capital  expenditures  (including purchase |                  |                
|deposits on flight equipment)              |                  |                 |             | 33,750      

|2002                                       | Midwest
Airlines | Midwest
Connect | Elimination | Consolidated
|------------------------------------------ | ---------------- | --------------- | ----------- | ------------
|Operating revenues                         |                  |                 | $           | 359,374     
|Operating loss                             |                  |                 |             | (47,529     
|Depreciation and amortization expense      |                  |                 |             | 17,312      
|Impairment loss                            |                  |                 |             | 29,911      
|Interest income                            |                  |                 |             | 1,346       
|Interest expense                           |                  |                 |             | 2,951       
|(Loss)  income  before income tax (credit) |                  |                
|provision                                  |                  |                 |             | (48,924     
|Income tax (credit) provision              |                  |                 |             | (17,124     
|Net (loss) income                          |                  |                 |             | (31,800     
|Total assets                               |                  |                 |             | 324,121     
|Capital  expenditures  (including purchase |                  |                
|deposits on flight equipment)              |                  |                 |             | 53,614      

60

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# NOTE 14. VALUATION AND
QUALIFYING ACCOUNTS

|(In Thousands)                               | Balance
at Beginning
of Year |  | Additions
Charged
to Expense |       | Deductions
from Reserve |   | Balance
at End
of Year | 
|-------------------------------------------- | ---------------------------- |  | ---------------------------- | ----- | ----------------------- | - | ---------------------- | 
|Allowance for doubtful accounts:             |                              |  |                              |       |                         |   |                        | 
|Year ended December 31, 2004                 |                              |  | $                            | 100   |                         | $ | 162                    | 
|Year ended December 31, 2003                 |                              |  | $                            | 133   |                         | $ | 117                    | 
|Year ended December 31, 2002                 |                              |  | $                            | 149   |                         | $ | 141                    | 
|Valuation allowance for deferred tax assets: |                              | 
|Year ended December 31, 2004                 |                              |  | $                            | 5,375 |                         | $ | 16,204                 | 
|Year ended December 31, 2003                 |                              |  | $                            | 2,675 |                         | $ | 2,700                  | 
|Year ended December 31, 2002                 |                              |  | $                            | 2,000 |                         | $ | 675                    | 
|Allowance for obsolete inventory:            |                              | 
|Year ended December 31, 2004                 |                              |  | $                            | 1,283 |                         | $ | 463                    | 
|Year ended December 31, 2003                 |                              |  | $                            | 998   |                         | $ | 285                    | 
|Year ended December 31, 2002                 |                              |  | $                            | 834   |                         | $ | 164                    | 

# NOTE 15. QUARTERLY
FINANCIAL SUMMARY (UNAUDITED)

|(In Thousands, Except Per Share Data)(4) | Three Months Ended | 
|---------------------------------------- | ------------------ | 
|
|Operating revenues                       |                    | 
|Operating expenses (1)                   |                    | 
|Operating loss                           |                    | 
|Other expense, net                       |                    | 
|Loss before income taxes                 |                    | 
|(Credit) provision for income taxes      |                    | 
|Net loss                                 |                    | 
|Loss per share - basic:                  |                    | 
|Net loss                                 |                    | 
|Loss per share - diluted:                |                    | 
|Net loss                                 |                    | 

|2003                                | March 31 |  | June 30 |         | September 30 |   | December 31 |  
|----------------------------------- | -------- |  | ------- | ------- | ------------ | - | ----------- | -
|Operating revenues                  |          |  | $       | 94,058  |              | $ | 96,898      |  
|Operating expenses (2)              |          |  |         | 111,980 |              |   | 102,453     |  
|Operating loss                      |          |  |         | (17,922 | )            |   | (5,555      | )
|Other income (expense), net (3)     |          |  |         | (1      | )            |   | 11,432      |  
|(Loss) income before income taxes   |          |  |         | (18,107 | )            |   | 5,554       |  
|(Credit) provision for income taxes |          |  |         | (6,337  | )            |   | 1,944       |  
|Net (loss) income                   |          |  |         | (11,770 | )            |   | 3,610       |  
|(Loss) income per share - basic:    |          | 
|Net (loss) income                   |          |  |         | (0.76   | )            |   | 0.23        |  
|(Loss) income per share - diluted:  |          | 
|Net (loss) income                   |          |  |         | (0.76   | )            |   | 0.23        |  

|(1) | Operating
expenses for the three-month period ended March 31, 2004 include           $1,200
associated with the early recognition of lease expense on two DC-9s           removed
from service prior to the end of the period. Operating expenses for the
          three-month period ended December 31, 2004 include $3,400 related to engine
          maintenance contract-related expenses.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Operating
expenses for the three-month period ended June 30, 2003 include $4,600
          associated with the early recognition of lease expense on five DC-9s removed
          from service prior to the end of the period. Operating expenses for the
          three-month period ended September 30, 2003 include a $4,000 loss recorded on
          the sale/leaseback of one MD-80 aircraft.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Other
income (expense), net for the three-month period ended June 30, 2003           includes
$11,400 of income related to the reimbursement of security costs under           the
Emergency Wartime Supplemental Appropriations Act.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Numbers
in this table may not be recalculated due to rounding.
|--- | --------------------------------------------------------------

61

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ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in or
disagreements on any matters of accounting principles or financial statement disclosure
between the Company and its independent auditors during the two most recent fiscal years
or any subsequent interim period.

# ITEM 9A. CONTROLS AND
PROCEDURES

Evaluation of Disclosure
Controls and Procedures.

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

Managements Report on
Internal Control over Financial Reporting.

The Companys management is
responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. Under the
supervision and with the participation of management, including the chief executive
officer and chief financial officer, an evaluation was conducted of the effectiveness of
internal control over financial reporting based on criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Management concluded that the Company maintained effective
internal control over financial reporting as of December 31, 2004. Managements
assessment of the effectiveness of internal control over financial reporting as of
December 31, 2004 has been audited by Deloitte & Touche, LLP, an independent
registered public accounting firm, as stated in their report that is included herein.

Attestation Report of the
Registered Public Accounting Firm.

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
and Shareholders of Midwest Air Group, Inc.  Milwaukee, WI

We have audited managements
assessment, included in the accompanying Managements Report on Internal Control Over
Financial Reporting, that Midwest Air Group, Inc. and subsidiaries (the
Company) maintained effective internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the Companys internal control over
financial reporting based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinions.

62

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A companys internal control
over financial reporting is a process designed by, or under the supervision of, the
companys principal executive and principal financial officers, or persons performing
similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.

Because of the inherent limitations
of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, managements
assessment that the Company maintained effective internal control over financial reporting
as of December 31, 2004, is fairly stated, in all material respects, based on the criteria
established in Internal Control  Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2004, based on the criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.

We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended December 31, 2004 of the
Company and our report dated February 16, 2005 expressed an unqualified opinion on those
financial statements.

/s/ Deloitte & Touche
LLP

Milwaukee, WIFebruary 16,
2005

Changes in Internal Control Over
Financial Reporting.

There were no changes in the
Companys internal control over financial reporting that occurred during the quarter
ended December 31, 2004 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.

# ITEM 9B. OTHER
INFORMATION

None.

63

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# PART III

# ITEM 10. DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT

Certain of the information required
in this item is set forth under the headings Election of Directors,
Executive Officers and Section 16(a) Beneficial Ownership Report
Compliance, which is incorporated herein by reference to the Companys
definitive Proxy Statement for the Annual Meeting of Shareholdersto be held on
April 20, 2005.

Code of Ethics

The Company has adopted a written
code of ethics that applies to its chief executive officer, chief financial officer,
controller and all other financial officers and executives performing similar functions.
As discussed previously under Available Information, a copy of this code of
ethics is available on the Companys Web site. The Company intends to satisfy the
disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers
from, the code of ethics by posting such information on its Web site at
www.midwestairlines.com.

# ITEM 11. EXECUTIVE
COMPENSATION

The information required in this item
is set forth under the heading Executive Compensation, which is incorporated
herein by reference to the Companys definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 20, 2005, provided, however, that the
subsection entitled Board Compensation Committee Report on Executive
Compensation shall not be deemed to be incorporated herein by reference.

# ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required in this Item
(other than the information required by Item 201(d) of Regulation S-K) is set forth under
the heading Stock Ownership of Management and Others, incorporated herein by
reference to the Companys definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 20, 2005.

The information with respect to Item
201(d) of Regulation S-K as of December 31, 2004, is as follows:

# Equity Compensation Plan
Information

|Plan category                 | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights | Weighted-average exercise
price of outstanding options,
warrants and rights | Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a) (1)
|----------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|                              | (a)                                                                                         | (b)                                                                         | (c)                                                                                                                                           
|Equity compensation plans     |                                                                                             |                                                                             |                                                                                                                                               
|approved by security holders  | 4,927,681                                                                                   | $9.38                                                                       | 450,235                                                                                                                                       
|Equity compensation plans not
|approved by security holders  | N.A.                                                                                        | N.A.                                                                        | 56,250                                                                                                                                        
|Total                         | 4,927,681                                                                                   | $9.38                                                                       | 506,485                                                                                                                                       

|(1) | 56,250
shares of Common Stock may be issued under the Midwest Express Holdings,           Inc.
Annual Incentive Plan (the Incentive Plan), which has not been
          approved by the Companys shareholders.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Incentive Plan provides
incentives to create additional shareholder value by establishing objectives that are
deemed to be in the best long-range interests of the Company and then making annual
payments of incentive awards to participants whose performance meaningfully contributed to
the attainment of these objectives. Annual payments of incentive awards may be made in
cash or common stock. Officers and other employees of the Company may participate, as
determined by the administrator, which is the Companys Compensation Committee in the
case of the officers and the Companys chief executive officer in the case of the
other employees. The Companys Compensation Committee may amend, interpret and
construe the Incentive Plan. A total of 56,250 shares of Common Stock may be issued under
the Incentive Plan, all of which remain, subject to appropriate adjustments in the event
of stock dividends (other than a stock dividend declared in lieu of an ordinary cash
dividend), spin-off, merger, consolidation, recapitalization or split-up, combination or
exchange of shares.

64

---

Under the Incentive Plan,
shareholder value added is a dollar amount equal to the excess of net
operating profit after tax over a calculated cost of the capital employed in the Company.
The plan provides that target awards under the plan may focus on corporate
shareholder value added, subsidiary shareholder value added and/or individual performance
measures that drive shareholder value as determined by the Companys Compensation
Committee or the chief executive officer, as the case may be. The Companys
Compensation Committee or the chief executive officer, as the case may be, approves for
each eligible officer or employee an annual incentive target award that represents a
percentage of the base salary range midpoint for the employees position. The
Incentive Plan does not provide for a maximum award, however to provide an incentive for
officers and employees to remain with the Company, the plan specifies that any awards
earned in excess of an employees target award are credited to an account for the
participant in an award bank. A participants balance in the award bank
is subject to forfeiture, and one-third of the balance is payable in each of the following
three years, assuming continued employment.

Incentive awards are paid in one lump
sum in the first quarter after the Companys fiscal year end. The incentive award is
paid in cash or, at the discretion of the administrator, in whole or in part by delivering
shares of common stock of the Company having a fair market value, determined as of the
last business day of the Companys fiscal year end to which the award relates, equal
to the amount of the incentive award to be paid in shares of common stock.

# ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The information required in this item
is set forth under the heading Election of Directors, which is incorporated
herein by reference to the Companys definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 20, 2005.

# ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES

The information required in this item
is set forth under the heading Independent Auditors, which is incorporated
herein by reference to the Companys definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 20, 2005.

65

---

# PART IV

# ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES

# (a)(1) Financial
Statements

Included in Item 8 of Part II of this
Annual Report on Form 10-K are the following: Independent Auditors Report,
Consolidated Statements of Operations, Consolidated Balance Sheets, Consolidated
Statements of Cash Flows, Consolidated Statements of Shareholders Equity and Notes
to Consolidated Financial Statements.

# (a)(2) Financial
Statement Schedules

The information required in Schedule
II is incorporated by reference to Note 14 of the Notes to Consolidated Financial
Statements contained in this Annual Report on Form 10-K.

# (b) Exhibits

The Exhibits filed or incorporated by
reference herewith are as specified in the Exhibit Index.

66

---

# SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                  |    | MIDWEST AIR GROUP, INC.                                     
|----------------- | -- | ------------------------------------------------------------
|                  |    | Registrant                                                  
|February 18, 2005 | By | /s/ TIMOTHY E. HOEKSEMA                                     
|                  |    |                                                             
|                  |    | Timothy E. Hoeksema                                         
|                  |    | Chairman of the Board, President and Chief Executive Officer

Pursuant to the requirements of the
Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on February 15, 2005.

|/s/ TIMOTHY E. HOEKSEMA       | Chairman of the Board of Directors,              
|----------------------------- | -------------------------------------------------
|Timothy E. Hoeksema           | President and Chief Executive Officer            
|                              | (Principal Executive Officer)                    
|/s/ CURTIS E. SAWYER          | Senior Vice President and Chief Financial Officer
|Curtis E. Sawyer              | (Principal Financial and Accounting Officer)     
|/s/ JOHN F. BERGSTROM         | Director                                         
|John F. Bergstrom            
|/s/ JAMES G. GROSKLAUS        | Director                                         
|James G. Grosklaus           
|/s/ ULICE PAYNE, JR           | Director                                         
|Ulice Payne, Jr              
|/s/ SAMUEL K. SKINNER         | Director                                         
|Samuel K. Skinner            
|/s/ ELIZABETH T. SOLBERG      | Director                                         
|Elizabeth T. Solberg         
|/s/ RICHARD H. SONNENTAG      | Director                                         
|Richard H. Sonnentag         
|/s/ FREDERICK P. STRATTON, JR | Director                                         
|Frederick P. Stratton, Jr    
|/s/ DAVID H. TREITEL          | Director                                         
|David H. Treitel             

67

---

# EXHIBIT INDEX

# MIDWEST AIR GROUP,
INC.  Annual Report on Form 10-K  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

|ExhibitNumber | Document Description
|------------- | --------------------

|(3.1) | Restated
Articles of Incorporation as amended through April 8, 2004                (incorporated
by reference to Exhibit 3.5 to the Companys Registration                Statements
on Form S-3 filed April 9, 2004 (File Nos. 333-110639, 333-110900 and
               333-111016)).
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3.2) | By-laws
of the Company as amended through April 29, 1999 (incorporated by
               reference to Exhibit 3 to the Companys Quarterly Report on Form 10-Q
for                the quarter ended June 30, 1999 (File No. 1-13934)).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3.3) | Articles
of Amendment relating to Series A Junior Participating Preferred Stock
               (incorporated by reference to Exhibit 3.3 to the Companys
Registration                Statement on Form 8-B filed May 2, 1996 (File No. 1-13934)).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3.4) | Articles
of Amendment relating to increase in authorized shares (incorporated by
               reference to Exhibit 3.4 to the Companys Annual Report on Form
10-K               for the year ended December 31, 2003 (File N0. 1-13934)).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4.1) | Rights
Agreement, dated February 14, 1996, between the Company and U.S. Bank
               National Association as successor in interest to Firstar Trust Company
               (incorporated by reference to Exhibit 4.1 to the Companys
Registration                Statement on Form 8-A filed February 15, 1996 (File No.
1-13934)).
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4.2) | Amendment
to the Rights Agreement, dated April 19, 1996, between the Company and
               U.S. Bank National Association as successor in interest to Firstar Trust
Company                (incorporated by reference to Exhibit 4.1 to the Companys
Registration                Statement on Form 8-B filed May 2, 1996 (File No. 1-13934)).
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4.3) | Amendment
to Rights Agreement, effective as of September 30, 2002, by and among                U.S.
Bank, National Association, the Company and American Stock Transfer &               Trust
Company (incorporated by reference to Exhibit 4.3 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2002 (File No.                1-13934)).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4.4) | Form
of Common Stock Purchase Warrant, dated as of August 19, 2003, issued to
               the parties named on the signature pages to the related Registration
Rights                Agreement (incorporated by reference to Exhibit 4.2 to the Companys
               Current Report on Form 8-K filed September 5, 2003 (File No. 1-13934)).
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4.5) | Form
of Convertible Senior Secured Note (incorporated by reference to Exhibit
               4.3 to the Companys Current Report on Form 8-K filed October 1, 2003
(File                No. 1-13934)).
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.1) | Lease
Agreement between Milwaukee County and Midwest Airlines, dated May 12,
               1988 (incorporated by reference to Exhibit 10.4 to the Companys
               Registration Statement on Form S-1 (File No. 33-95212) (the S-1)).
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.2) | Airline
Lease, as amended, between Milwaukee County and Midwest Airlines, dated
               October 1, 1984 (incorporated by reference to Exhibit 10.5 to the S-1).
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.3) | Omaha
Airport Authority Agreement and Lease at Eppley Airfield with Midwest
               Airlines between the Airport Authority of the City of Omaha and Midwest
Airlines                (incorporated by reference to Exhibit 10.6 to the S-1).
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.4) | Airline
Lease, as amended, between Milwaukee County and Midwest Connect, dated
               November 23, 1994 (incorporated by reference to Exhibit 10.7 to the S-1).
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.5) | Lease
Agreement between Milwaukee County and Phillip Morris Incorporated, dated
               October 7, 1982, to which Midwest Connect has succeeded as lessee
(incorporated                by reference to Exhibit 10.8 to the S-1).
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.6) | Tax
Allocation and Separation Agreement among Kimberly-Clark Corporation, K-C
               Nevada, Inc., the Company, Midwest Airlines and Midwest Connect dated
September                27, 1995 (incorporated by reference to Exhibit 10.1 to the
Companys                Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (File No.                1-13934)).
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.7) | Guarantee
Fee Agreement between Kimberly-Clark Corporation and the Company dated
               September 27, 1995 (incorporated by reference to Exhibit 10.3 to the
               Companys Quarterly Report on Form 10-Q for the quarter ended
September 30,                1995 (File No. 1-13934)).
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.8) | Employee
Matters Agreement between Kimberly-Clark Corporation and the Company                dated
September 27, 1995 (incorporated by reference to Exhibit 10.4 to the
               Companys Quarterly Report on Form 10-Q for the quarter ended
September 30,                1995 (File No. 1-13934)).
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.9) | Tenth
Amendment to Airline Lease between Milwaukee County and Midwest Airlines,
               dated August 18, 1997 (incorporated by reference to Exhibit 10.9 to the
               Companys Annual Report on Form 10-K for the year ended
December 31,                1997 (File No. 1-13934)).
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.10) | Eleventh
Amendment to Airline Lease between Milwaukee County and Midwest                Airlines,
dated December 17, 1997 (incorporated by reference to Exhibit 10.10 to                the
Companys Annual Report on Form 10-K for the year ended December
               31, 1997 (File No. 1-13934)).
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

68

---

|ExhibitNumber | Document Description
|------------- | --------------------

|(10.11) | Twelfth
Amendment to Airline Lease, as amended between Milwaukee County and
               Midwest Airlines, dated April 21, 1998 (incorporated by reference to
Exhibit 10                to the Companys Quarterly Report on Form 10-Q for the
quarter ended March                31, 1998 (File No. 1-13934)).
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.12)+ | Assignment
of Rights Agreement between Dolphin Trade & Finance, LTD and Midwest Airlines, dated
November 14, 1997 (incorporated by reference to Exhibit 10.11 to the Companys Annual
Report on Form 10-K for the year ended December 31, 1997 (File No. 1-13934)).
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.13)* | Midwest
Express Holdings, Inc. 1995 Stock Option Plan, as amended through February 13, 1997
(incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on
Form S-8 (File No. 333-44253)). (Further amendment effected on April 25, 2001. See
Exhibit (10.24) below).
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.14)* | Midwest
Express Holdings, Inc. 1995 Stock Plan for Outside Directors, as amended through February
20, 2002 (incorporated by reference to Exhibit 10.14 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2001 (File No. 1-13934)).
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.15)* | Annual
Incentive Compensation Plan, amended through February 11, 1998 (incorporated by reference
to Exhibit 10.14 to the Companys Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-13934)).
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.16)* | Supplemental
 Benefits Plan  (incorporated by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-K                for the year ended December 31, 1995 (File No.
1-13934)).
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.17)* | Form
of Key Executive Employment and Severance Agreement between the Company and each of
Timothy E. Hoeksema,  Carol                N. Skornicka,  David C. Reeve, Christopher I.
Stone and Curtis Sawyer (incorporated by reference to Exhibit 10.17 to                the
Company's Registration Statement on Form S-1 (File No. 333-110639)).
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.18)* | Form
of Key  Executive  Employment  and Severance  Agreement  between the Company and Dennis
J. O'Reilly and certain                other  officers  (incorporated  by reference to
Exhibit  10.17 to the Company's  Registration  Statement on Form S-1                (File
No. 333-110639)).
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.19) | Thirteenth
Amendment to Airline Lease, as amended between Milwaukee County and
               Midwest Airlines, dated April 5, 1999 (incorporated by reference to
Exhibit 10                to the Companys Quarterly Report on Form 10-Q for the
quarter ended March                31, 1999 (File No. 1-13934)).
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.20) | Fourteenth
Amendment to Airline Lease, as amended between Milwaukee County and
               Midwest Airlines, dated June 15, 1999 (incorporated by reference to
Exhibit 10                to the Companys Quarterly Report on Form 10-Q for the
quarter ended June                30, 1999 (File No. 1-13934)).
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.21) | Fifteenth
Amendment to Airline Lease, as amended between Milwaukee County and
               Midwest Airlines, dated February 16, 2000 (incorporated by reference to
Exhibit                10 to the Companys Quarterly Report on Form 10-Q for the
quarter ended                March 31, 2000 (File No. 1-13934)).
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.22) | Seventeenth
Amendment to Airline Lease, as amended between Milwaukee County and
               Midwest Airlines, dated June 29, 2000 (incorporated by reference to
Exhibit 10                to the Companys Quarterly Report on Form 10-Q for the
quarter ended                September 30, 2000 (File no. 1-13934)).
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.23) | Sixteenth
Amendment to Airline Lease, as amended between Milwaukee County and
               Midwest Airlines, dated January 1, 2001 (incorporated by reference to
Exhibit                10.23 to the Companys Annual Report on Form 10-K for
the year ended                December 31, 2000 (File No. 1-139394)).
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.24)* | Amendment
to Midwest Express Holdings, Inc. 1995 Stock Option Plan, as approved by the Companys
shareholders on April 25, 2001 (incorporated by reference to Appendix B to the Notice of
Annual Meeting and Proxy Statement of the Company for the Annual Meeting of the
Shareholders on April 25, 2002 (File No. 1-3934)).
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.27) | Eighteenth
Amendment to Airline Lease, as amended between Milwaukee County and
               Midwest Airlines, dated July 27, 2001 (incorporated by reference to
Exhibit                10.27 to the Companys Annual Report on Form 10-K for
the year ended                December 31, 2001 (File No. 1-13934)).
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.33)+ | General
Terms Agreement, dated August 13, 2001 (the August Terms Agreement), between
Rolls-Royce Corporation and Astral Aviation, Inc. (Astral) and Side Letter
Number One to the August Terms Agreement, dated August 13, 2001, >between Rolls-Royce
Corporation and Astral (incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 1-13934)).
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

69

---

|ExhibitNumber | Document Description
|------------- | --------------------

|(10.34)+ | Purchase
Agreement DCT-043/01, dated August 13, 2001 (Embraer Purchase Agreement),
between Embraer  Empresa Brasileira de Aeronautica S.A. (Embraer) and
Astral; Letter Agreement DCT-044/01, dated August 13, 2001 (Embraer Letter Agreement),
between Embraer and Astral relating to Embraer Purchase Agreement, including Amendment No. 01
to Embraer Letter Agreement, dated September 27, 2001, between Embraer and Astral;
Amendment No. 01 to Embraer Purchase Agreement, dated September 27, 2001, between
Embraer and Astral; Amendment No. 02 to Embraer Purchase Agreement, dated October
19, 2001, between Embraer and Astral; and Amendment No. 03 to Embraer Purchase
Agreement, dated March 6, 2002, between Embraer and Astral (incorporated by reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002 (File No. 1-13934)).
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.35)+ | General
Terms Agreement, dated April 11, 2002 (the April Terms Agreement), between
Rolls-Royce Deutschland Ltd & Co KG (Rolls-Royce) and Midwest Airlines
and Side Letter Agreement Number One to the April Terms Agreement, dated April 12, 2002,
between Rolls-Royce and Midwest Airlines (incorporated by reference to Exhibit 10.3 to
the Companys Quarterly Report on Form 10-Qfor the quarter ended June 30,
2002 (File No. 1-13934)).
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.36)+ | Aircraft
General Terms Agreement Number AGTA-MWE, dated September 28, 2001 (the AGTA-MWE
Terms Agreement), among The Boeing Company, and its wholly owned subsidiary
McDonnell Douglas Corporation (McDonnell), and Midwest Airlines; Letter
Agreement (6-1162-RCN-1483) to the AGTA-MWE Terms Agreement and 717 Purchase Agreement
(defined below), dated September 28, 2001 (Letter Agreement No. 1 to AGTA-MWE),
between McDonnell and Midwest Airlines; and Letter Agreement (6-1162-RCN-1484) to the
AGTA-MWE Terms Agreement and 717 Purchase Agreement, dated September 28, 2001 (Letter
Agreement No. 2 to AGTA-MWE), between McDonnell and Midwest Airlines
(incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report on Form
10-Qfor the quarter ended June 30, 2002 (File No. 1-13934)).
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.37)+ | Purchase
Agreement Number 2371, dated September 28, 2001 (717 Purchase Agreement),
between McDonnell and Midwest Airlines; Supplemental Agreement No. 1 to 717 Purchase
Agreement, dated April 12, 2002, between McDonnell and Midwest Airlines; Letter Agreement
No. 1 to AGTA-MWE (see above); Letter Agreement No. 2 to AGTA-MWE (see above);
Letter Agreement (6-1162-RCN-1497) to 717 Purchase Agreement, dated September 28,
2001, between McDonnell and Midwest Airlines; Letter Agreement (6-1162-RCN-1503) to 717
Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines;
Letter Agreement (6-1162-RCN-1593) to 717 Purchase Agreement, dated September 28, 2001,
between McDonnell and Midwest Airlines; Letter Agreement (6-1162-RCN-1476) to 717
Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines;
Letter Agreement (6-1162-RCN-1481R1) to 717 Purchase Agreement, dated April 12, 2002,
between McDonnell and Midwest Airlines; Letter Agreement (6-1162-RCN-1482) to 717
Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines; and
Letter Agreement (6-1162-MJB-002) to 717 Purchase Agreement, dated September 28, 2001,
between McDonnell and Midwest Airlines (incorporated by reference to Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Qfor the quarter ended June 30, 2002
(File No. 1-13934)).
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.40) | Partial
Termination, Consent and Cash Collateral Agreement, dated as of October
               21, 2003, by and among the Company, the lenders party thereto and U.S.
Bank                National Association (incorporated by reference to Exhibit 10.40 to
the                Companys Registration Statement on Form S-1 (File No.
333-110639)).
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.41) | Form
of Basic Moratorium Note (incorporated by reference to Exhibit 4.1 to the
               Companys Current Report on Form 8-K filed September 5, 2003 (File
No.                1-13934)).
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.42) | Midwest
Express Holdings, Inc. 2003 All-Employee Stock Option Plan (incorporated
               by reference to Exhibit 10.42 to the Companys Annual Report on
Form                10-K for the year ended December 31, 2003 (File No. 1-139344)).
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(21) | List
of the Companys subsidiaries (incorporated by reference to Exhibit 21
               to the Companys Annual Report on Form10-K for the
year                ended December 31, 2000 (File No. 1-139344)).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(23) | Consent
of Deloitte & Touche LLP, Independent Auditors.
|---- | -------------------------------------------------------

|(31.1) | Certification
of Chief Executive Officer pursuant to Rule 13a-14(a).
|------ | --------------------------------------------------------------------

|(31.2) | Certification
of Chief Financial Officer pursuant to Rule 13a-14(a).
|------ | --------------------------------------------------------------------

|(32) | Certification
of Chief Executive Officer and Chief Financial Officer pursuant to                18
U.S.C. Section 1350.
|---- | -----------------------------------------------------------------------------------------------------------------------

|+ | Portions
of this exhibit have been redacted and are subject to a confidential treatment request
filed with the Secretary of Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. The redacted material was filed
separately with the Securities and Exchange Commission.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | A
management contract or compensatory plan or arrangement.
|- | ----------------------------------------------------------

70