OPERATING SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

OPERATING SEGMENT INFORMATION

OPERATING SEGMENT INFORMATION

Alaska Air Group has three operating airlines—Alaska, Virgin America and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon, as well as with third-party carriers SkyWest and PenAir, under which Alaska receives all passenger revenues.

Under U.S. GAAP, operating segments are defined as components of a business for which there is discrete financial information that is regularly assessed by the Chief Operating Decision Maker ("CODM") in making resource allocation decisions. Financial performance for the operating airlines and CPAs is managed and reviewed by the Company's CODM as part of three reportable operating segments:

• Mainline - includes Alaska's and Virgin America’s scheduled air transportation for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, Costa Rica and Cuba.

• Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. under CPAs. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.

• Horizon - includes the capacity sold to Alaska under CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.

The CODM makes resource allocation decisions for these reporting segments based on flight profitability data, aircraft type, route economics and other financial information. The "Consolidating and Other" column reflects parent company activity, consolidating entries and other immaterial business units of the company. The “Air Group Adjusted” column represents a non-GAAP measure that is used by the Company CODM to evaluate performance and allocate resources. Adjustments are further explained below in reconciling to consolidated GAAP results.

Operating segment information is as follows (in millions):

	Three Months Ended September 30, 2017
	Mainline			Regional		Horizon			Consolidating & Other(a)			Air Group Adjusted(b)			Special Items(c)			Consolidated
Operating revenues
Passenger
Mainline	$	1,562		$	—	$	—		$	—		$	1,562		$	—		$	1,562
Regional	—			262		—			—			262			—			262
Total passenger revenues	1,562			262		—			—			1,824			—			1,824
CPA revenues	—			—		112			(112		)	—			—			—
Freight and mail	30			1		1			—			32			—			32
Other—net	242			21		1			—			264			—			264
Total operating revenues	1,834			284		114			(112		)	2,120			—			2,120
Operating expenses
Operating expenses, excluding fuel	1,077			219		105			(112		)	1,289			24			1,313
Economic fuel	328			45		—			—			373			(5		)	368
Total operating expenses	1,405			264		105			(112		)	1,662			19			1,681
Nonoperating income (expense)
Interest income	11			—		—			(2		)	9			—			9
Interest expense	(23		)	—		(4		)	1			(26		)	—			(26		)
Other	5			—		—			—			5			—			5
Total Nonoperating income (expense)	(7		)	—		(4		)	(1		)	(12		)	—			(12		)
Income (loss) before income tax	$	422		$	20	$	5		$	(1	)	$	446		$	(19	)	$	427

	Three Months Ended September 30, 2016
	Mainline			Regional		Horizon			Consolidating & Other(a)			Air Group Adjusted(b)			Special Items(c)			Consolidated
Operating revenues
Passenger
Mainline	$	1,073		$	—	$	—		$	—		$	1,073		$	—		$	1,073
Regional	—			249		—			—			249			—			249
Total passenger revenues	1,073			249		—			—			1,322			—			1,322
CPA revenues	—			—		109			(109		)	—			—			—
Freight and mail	30			1		—			—			31			—			31
Other—net	190			21		1			1			213			—			213
Total operating revenues	1,293			271		110			(108		)	1,566			—			1,566
Operating expenses
Operating expenses, excluding fuel	727			202		99			(109		)	919			22			941
Economic fuel	188			34		—			—			222			3			225
Total operating expenses	915			236		99			(109		)	1,141			25			1,166
Nonoperating income (expense)
Interest income	7			—		—			—			7			—			7
Interest expense	(7		)	—		(2		)	(2		)	(11		)	—			(11		)
Other	5			—		—			1			6			—			6
Total Nonoperating income (expense)	5			—		(2		)	(1		)	2			—			2
Income (loss) before income tax	$	383		$	35	$	9		$	—		$	427		$	(25	)	$	402

	Nine Months Ended September 30, 2017
	Mainline			Regional		Horizon			Consolidating & Other(a)			Air Group Adjusted(b)			Special Items(c)			Consolidated
Operating revenues
Passenger
Mainline	$	4,390		$	—	$	—		$	—		$	4,390		$	—		$	4,390
Regional	—			725		—			—			725			—			725
Total passenger revenues	4,390			725		—			—			5,115			—			5,115
CPA revenues	—			—		317			(317		)	—			—			—
Freight and mail	84			3		1			—			88			—			88
Other—net	708			57		3			—			768			—			768
Total operating revenues	5,182			785		321			(317		)	5,971			—			5,971
Operating expenses
Operating expenses, excluding fuel	3,101			625		324			(316		)	3,734			88			3,822
Economic fuel	924			120		—			—			1,044			7			1,051
Total operating expenses	4,025			745		324			(316		)	4,778			95			4,873
Nonoperating income (expense)
Interest income	27			—		—			(2		)	25			—			25
Interest expense	(68		)	—		(9		)	—			(77		)	—			(77		)
Other	11			—		1			—			12			—			12
Total Nonoperating income (expense)	(30		)	—		(8		)	(2		)	(40		)	—			(40		)
Income (loss) before income tax	1,127			40		(11		)	(3		)	1,153			(95		)	1,058

	Nine Months Ended September 30, 2016
	Mainline			Regional		Horizon			Consolidating & Other(a)			Air Group Adjusted(b)			Special Items(c)			Consolidated
Operating revenues
Passenger
Mainline	$	3,036		$	—	$	—		$	—		$	3,036		$	—		$	3,036
Regional	—			682		—			—			682			—			682
Total passenger revenues	3,036			682		—			—			3,718			—			3,718
CPA revenues	—			—		322			(322		)	—			—			—
Freight and mail	79			3		—			—			82			—			82
Other—net	546			57		3			1			607			—			607
Total operating revenues	3,661			742		325			(321		)	4,407			—			4,407
Operating expenses
Operating expenses, excluding fuel	2,107			580		305			(322		)	2,670			36			2,706
Economic fuel	512			90		—			—			602			(9		)	593
Total operating expenses	2,619			670		305			(322		)	3,272			27			3,299
Nonoperating income (expense)
Interest income	19			—		1			—			20			—			20
Interest expense	(23		)	—		(7		)	(3		)	(33		)	—			(33		)
Other	15			—		—			4			19			—			19
Total Nonoperating income (expense)	11			—		(6		)	1			6			—			6
Income (loss) before income tax	1,053			72		14			2			1,141			(27		)	1,114

(a) Includes consolidating entries, Parent Company, McGee Air Services, and other immaterial business units.

(b) The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain income and charges.

(c) Includes merger-related costs and mark-to-market fuel-hedge accounting charges.

Total assets were as follows (in millions):

	September 30, 2017			December 31, 2016
Mainline	$	16,382		$	15,260
Horizon	914			690
Consolidating & Other	(6,557		)	(5,988		)
Consolidated	$	10,739		$	9,962