OPERATING SEGMENT INFORMATION

Alaska Air Group has two operating airlines—Alaska (including Virgin America after the single operating certificate received in January 2018) and Horizon. Each is a regulated airline 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. General Accepted Accounting Principles, 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 scheduled air transportation on Alaska's Boeing or Airbus jet aircraft for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, and Costa Rica.


•	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, McGee Air Services, 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):



	Year Ended December 31, 2018
	Mainline			Regional			Horizon			Consolidating & Other^(b)			Air Group Adjusted^(c)			Special Items^(d)			Consolidated
Operating revenues
Passenger revenues	6,475			1,157			—			—			7,632			—			7,632
CPA revenues	—			—			508			(508		)	—			—			—
Mileage Plan other revenue	397			37			—			—			434			—			434
Cargo and other	191			3			4			—			198			—			198
Total operating revenues	7,063			1,197			512			(508		)	8,264			—			8,264
Operating expenses
Non-fuel operating expenses	4,577			1,024			465			(513		)	5,553			132			5,685
Fuel expense	1,652			262			—			—			1,914			22			1,936
Total operating expenses	6,229			1,286			465			(513		)	7,467			154			7,621
Nonoperating income (expense)
Interest income	53			—			—			(15		)	38			—			38
Interest expense	(82		)	—			(22		)	13			(91		)	—			(91		)
Interest capitalized	16			—			2			—			18			—			18
Other	(12		)	(11		)	—			—			(23		)	—			(23		)
Total nonoperating expense	(25		)	(11		)	(20		)	(2		)	(58		)	—			(58		)
Income (loss) before income tax	$	809		$	(100	)	$	27		$	3		$	739		$	(154	)	$	585



	Year Ended December 31, 2017
	Mainline			Regional		Horizon			Consolidating & Other^(b)			Air Group Adjusted^(c)			Special Items^(d)			Consolidated
Operating revenues
Passenger revenues	6,278			1,023		—			—			7,301			—			7,301
CPA revenues	—			—		426			(426		)	—			—			—
Mileage Plan other revenue	387			31		—			—			418			—			418
Cargo and other	167			4		4			—			175			—			175
Total operating revenues	6,832			1,058		430			(426		)	7,894			—			7,894
Operating expenses
Non-fuel operating expenses	4,271			852		427			(427		)	5,123			116			5,239
Fuel expense	1,282			172		—			—			1,454			(7		)	1,447
Total operating expenses	5,553			1,024		427			(427		)	6,577			109			6,686
Nonoperating income (expense)
Interest income	39			—		—			(5		)	34			—			34
Interest expense	(92		)	—		(13		)	2			(103		)	—			(103		)
Interest capitalized	15			—		2			—			17			—			17
Other	3			—		—			—			3			—			3
Total nonoperating expense	(35		)	—		(11		)	(3		)	(49		)	—			(49		)
Income (loss) before income tax	$	1,244		$	34	$	(8	)	$	(2	)	$	1,268		$	(109	)	$	1,159



	Year Ended December 31, 2016
	Mainline^(a)			Regional		Horizon			Consolidating & Other^(b)			Air Group Adjusted^(c)			Special Items^(d)			Consolidated
Operating revenues
Passenger revenues	4,415			977		—			—			5,392			—			5,392
CPA revenues	—			—		424			(424		)	—			—			—
Mileage Plan other revenue	333			37		—			—			370			—			370
Cargo and other	160			4		—			(1		)	163			—			163
Total operating revenues	4,908			1,018		424			(425		)	5,925			—			5,925
Operating expenses
Non-fuel operating expenses	2,919			769		407			(424		)	3,671			117			3,788
Fuel expense	719			125		—			—			844			(13		)	831
Total operating expenses	3,638			894		407			(424		)	4,515			104			4,619
Nonoperating income (expense)
Interest income	26			—		1			—			27			—			27
Interest expense	(42		)	—		(9		)	(4		)	(55		)	—			(55		)
Interest capitalized	20			—		1			4			25			—			25
Other	13			—		—			—			13			—			13
Total nonoperating income (expense)	17			—		(7		)	—			10			—			10
Income (loss) before income tax	$	1,287		$	124	$	10		$	(1	)	$	1,420		$	(104	)	$	1,316


(a)	As the acquisition of Virgin America closed on December 14, 2016, Mainline financial results, presented above include Virgin America only for the period from December 14, 2016 to December 31, 2016. Financial results also reflect the impacts of purchase accounting.


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


(c)	The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and excludes certain income and charges.


(d)	Includes merger-related costs, mark-to-market fuel-hedge accounting adjustments, and other special items.



	2018			2017			2016
Depreciation and amortization:
Mainline	$	316		$	308		$	296
Horizon	82			64			67
Consolidated	$	398		$	372		$	363

Capital expenditures:
Mainline	$	571		$	734		$	608
Horizon	389			292			70
Consolidated	$	960		$	1,026		$	678

Total assets at end of period:
Mainline	$	16,853		$	16,663
Horizon	1,229			929
Consolidating & Other	(7,170		)	(6,846		)
Consolidated	$	10,912		$	10,746