UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

☒   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

OR

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                      to        

Commission File Number 1-8957

ALASKA AIR GROUP, INC.

Delaware	91-1292054
(State of Incorporation)	(I.R.S. Employer Identification No.)

19300 International Boulevard, Seattle, Washington 98188

Telephone: (206) 392-5040

Securities registered pursuant to section 12(b) of the Act:

Title of each class	Name of exchange on which registered	Ticker symbol
Common Stock, $0.01 Par Value	New York Stock Exchange	ALK

 Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒   No  ☐ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ☐      No   ☒

Indicate by check mark 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  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark 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.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act: 

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

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As of January 31, 2021, shares of common stock outstanding totaled 124,226,396. The aggregate market value of the shares of common stock of Alaska Air Group, Inc. held by nonaffiliates on June 30, 2020, was approximately $4.5 billion (based on the closing price of $36.26 per share on the New York Stock Exchange on that date). 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Definitive Proxy Statement relating to 2021 Annual Meeting of Shareholders are incorporated by reference in Part III.

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ALASKA AIR GROUP, INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2020

TABLE OF CONTENTS

PART I		4
ITEM 1.	OUR BUSINESS	4
ITEM 1A.	RISK FACTORS	19
ITEM 1B.	UNRESOLVED STAFF COMMENTS	28
ITEM 2.	PROPERTIES	28
ITEM 3.	LEGAL PROCEEDINGS	29
ITEM 4.	MINE SAFETY DISCLOSURES	30
PART II		30
ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES	30
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	49
ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	50
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	91
ITEM 9A.	CONTROLS AND PROCEDURES	91
ITEM 9B.	OTHER INFORMATION	95
PART III		95
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	95
ITEM 11.	EXECUTIVE COMPENSATION	95
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS	96
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	96
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	96
PART IV		96
ITEM 15.	EXHIBITS	96
	SIGNATURES	97

As used in this Form 10-K, the terms “Air Group,” the "Company," “our,” “we” and "us," refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc., Virgin America Inc. (through July 20, 2018, at which point it was legally merged into Alaska Airlines, Inc.), and Horizon Air Industries, Inc. are referred to as “Alaska,” "Virgin America" and “Horizon,” respectively, and together as our “airlines.”

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions, although not all forward-looking statements contain these identifying words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations.

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You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control.

Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse to our shareholders. For a discussion of these and other risk factors in this Form 10-K, see “Item 1A: Risk Factors.” Please consider our forward-looking statements in light of those risks as you read this report.

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PART I 

ITEM 1. OUR BUSINESS

Alaska Air Group is a Delaware corporation incorporated in 1985 that operates two airlines, Alaska and Horizon. Alaska was organized in 1932 and incorporated in 1937 in the state of Alaska. Horizon is a Washington corporation that was incorporated and began service in 1981, and was acquired by Air Group in 1986. Virgin America was a member of Air Group from its acquisition in 2016 through 2018, at which time Alaska and Virgin America combined operating certificates and legally merged into a single entity. The Company also includes McGee Air Services, an aviation services provider that was established as a wholly-owned subsidiary of Alaska in 2016, and other subsidiaries.

Alaska and Horizon operate as separate airlines, with individual business plans, competitive factors and economic risks. We organize the business and review financial operating performance by aggregating our business in three operating segments, which are as follows:

•Mainline - includes scheduled air transportation on Alaska's Boeing and Airbus jet aircraft for passengers and cargo throughout the U.S., and in parts of 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. and Canada under capacity purchase agreements (CPA). 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 a CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.

Together we are the fifth largest airline in the United States, offering unparalleled guest service, connectivity and schedules from our hub markets along the West Coast. With our regional partners we fly to more than 115 destinations throughout the United States and North America. We have operated in a highly competitive and often challenging industry for over 88 years. Our top priority as an airline is ensuring the safety of our guests and employees, an area that we have continued to invest in during 2020 despite the significant financial challenges we encountered. Our success over many decades and resilience in difficult times is attributable to our people, business model, and commitment to sustainable growth over the long-term.

2020 was a year of uncertainty and challenge. The impact of the pandemic stemming from the outbreak of the novel coronavirus (COVID-19) presented us with the greatest financial challenge in our history. Travel restrictions and stay-at-home orders, coupled with the closure of many popular destinations and the cancellation of major events, drove demand for air travel to historic lows in the spring of 2020. Although we have seen modest improvement since that time, including improved booking activity at the end of 2020 and in early 2021, demand remains well below historical levels.

In response to reduced demand, we acted quickly to preserve cash by reducing flying across our network and removing fixed and discretionary costs to the greatest extent possible. We also prepared for a potentially long recovery period by accessing $5 billion in liquidity, including private placement offerings, government funding, bank debt and the sale of ten Airbus aircraft. Part of the government funding received was through the Payroll Support Program of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which provided critical support to enable us to preserve jobs and continue to provide an essential service to the communities we serve. Although our debt balances have increased, our cash preservation efforts were effective and our adjusted net debt at the end of 2020 is substantially unchanged from the end of 2019. Protecting the health of our balance sheet has positioned us well for the recovery that is expected in 2021 and beyond.

We took action early in the pandemic to ensure a safe environment for guests and our employees. We launched our Next-Level Care initiative, which includes over 100 safety measures that have been, and will continue to be, vital to restoring guest confidence in travel onboard our aircraft. To provide peace of mind in guests' travel decisions, we also eliminated change fees for first class or main cabin itineraries, and we extended the expiry of outstanding travel credits to December 31, 2021.

Although the pandemic has had a significant negative impact on our business, we have attempted to reduce its effect on our employees where possible. To minimize the need for involuntary furloughs, we instituted early-out and voluntary leave programs, which were accepted by 3,900 employees. Additionally, we aligned the focus of our 22,000 employees on reducing cash burn and delivering a safe travel experience for guests by creating an incentive program designed to supplement our traditional performance-based pay and operational performance programs. Through these programs, our employees earned $130 million in incentive pay in 2020. We strongly believe that aligning employees under common goals makes our company better,

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and expect that Alaska and Horizon will be among the only airlines in the U.S. to provide generous incentive payments for employees in 2020.

In spite of the difficult year, Alaska and Horizon continued to actively support the communities we serve. In 2020, Air Group companies donated $10 million in cash and in-kind travel to over 900 charitable organizations, and our employees volunteered more than 17,000 hours of community service related to youth and education, medical research and transportation. Our cargo business also provided critical support to communities in need by transporting essential goods and shipments of COVID-19 vaccines throughout the state of Alaska.

As we look forward, we know that our business is dependent on getting guests flying again and getting our people and assets back to work. Now that the the initial response to the pandemic is largely behind us, we have shifted our attention toward recovery as we prepare for the return in demand. Over the next several months as the recovery ensues, our focus areas include the following:

Capturing demand for travel

Capturing the demand that exists for travel will be vital to our recovery. In 2020, the rebound in leisure travel was much more robust than business travel, and we expect to see that trend continue in 2021. To capture that leisure demand, we announced 30 new routes in 2020, aimed at connecting our guests to warm-weather and outdoor recreation locations. To further reduce travel friction, we have worked with health partners and local governments to implement processes to meet locally-mandated travel requirements. In December 2020, in partnership with the state of Hawai'i government, Alaska was the first airline to launch a pre-clearance program to Hawai'i, providing our guests with a seamless travel experience and allowing them to bypass screening upon arrival. We expect these pre-clearance programs to mature in 2021 and believe they will aid overall recovery and willingness of travelers to fly.

We believe marketing to guests who may soon return to travel, and ensuring they are familiar with our safety initiatives, is key to capturing demand as it returns. Toward the end of 2020 we launched several campaigns encouraging guests to book future travel. Our Let's Go Campaign emphasized the layers of safety we have put in place, and our friends and family discount program engaged our employees in reaching out to guests. These promotions and others like them stimulated bookings, and the results have served as an encouraging indicator that our guests are eager to return to travel in 2021.

In 2020, we announced the West Coast International Alliance (WCIA) with American Airlines, Inc. (American) which will provide more destinations, greater utility and more value for our guests and loyalty members. The alliance will allow Alaska Mileage Plan members to enjoy benefits across both airlines by early spring 2021. In conjunction with our partnership with American, we accepted a formal invitation to join the oneworld® global alliance, with entry expected on March 31, 2021. Alaska Mileage PlanTM members will have significantly expanded benefits in the oneworld program, including reciprocal tier status in oneworld, as well as the ability to earn and use miles to reach more than 1,000 destinations worldwide. The WCIA and oneworld enhances Alaska's presence globally, and will position us to capture an incremental share of global travelers and corporate accounts as recovery begins to take shape.

Reducing our cost structure and strengthening our balance sheet

Maintaining a low cost structure has been critical to our past success, and we believe it will be even more important in the recovery ahead. In 2020 we reduced our adjusted non-fuel operating costs by $1.3 billion, or 22% from 2019, through reductions in flying and minimizing discretionary expenditures. As we return aircraft to service and build capacity in recovery, we are focused on returning to 2019 unit cost levels, excluding fuel and special items, even if we are a smaller company. To this end, we have identified over $250 million in structural cost savings initiatives that we began to realize in the fourth quarter of 2020, which will continue to ramp through 2021. Having low costs when demand returns will enable us to return to profitability more quickly, and will lead to positive cash flow generation. This, in turn, will enable us to begin repaying the debt that we have taken on, which is foundational for our future growth. Additionally, exiting 2020 with adjusted net debt that is largely flat as compared to the prior year means that we have cash on hand that can be used to pay down debt when we believe we are in a stable recovery.

In late 2020, Alaska announced an agreement in principle with Boeing to restructure and grow the existing Boeing 737 MAX (MAX) aircraft purchase agreement. As part of this restructuring, Alaska renegotiated the terms of its aircraft order with Boeing, which will expand the total firm aircraft to 55 to be delivered between 2021 and 2024, with options to purchase an additional 52 aircraft with delivery between 2023 and 2026. Alaska also announced an agreement with Air Lease Corporation to obtain an additional 13 leased MAX aircraft with deliveries between 2021 and 2022, bringing total firm deliveries of MAX aircraft to 68 by 2024. This will allow us to replace Airbus A319 and A320 aircraft that will be returned off lease over the next

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few years. Further, this agreement provides the flexibility to align our growth with the demand environment. Shifting substantially to a single mainline fleet that is more efficient, profitable and sustainable will help support our overall long-term goals.

We have a long track record of disciplined cost control and balance sheet management, and we will continue to aggressively manage both as we navigate through and exit the COVID-19 pandemic.

AIR GROUP

Our airlines operate different aircraft and missions. Alaska operates a fleet of narrowbody passenger jets on primarily longer stage-length routes. Alaska contracts primarily with Horizon and SkyWest Airlines, Inc. (SkyWest) for shorter-haul capacity, such that Alaska receives all passenger revenue from those flights. Horizon operates Embraer 175 (E175) regional jet aircraft and Bombardier Q400 turboprop aircraft and sells all of its capacity to Alaska pursuant to a CPA. The majority of our revenues are generated by transporting passengers. The percentage of revenues by category is as follows:

	2020		2019		2018		2017		2016(a)
Passenger revenue	85	%	92	%	93	%	93	%	91	%
Mileage Plan other revenue	10	%	5	%	5	%	5	%	6	%
Cargo and other	5	%	3	%	2	%	2	%	3	%
Total	100	%	100	%	100	%	100	%	100	%

(a)Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.

We deploy aircraft in ways that we believe will best optimize our revenues and profitability and reduce the impacts of seasonality.

The percentage of our capacity by region is as follows:

	2020		2019		2018		2017		2016(a)
West Coast(b)	32	%	28	%	27	%	28	%	34	%
Transcon/midcon	41	%	44	%	44	%	43	%	29	%
Hawaii and Costa Rica	10	%	14	%	14	%	13	%	17	%
Alaska	11	%	10	%	10	%	10	%	14	%
Mexico	5	%	3	%	4	%	5	%	5	%
Canada	1	%	1	%	1	%	1	%	1	%
Total	100	%	100	%	100	%	100	%	100	%

(a)Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.

(b)Category represents flying within the West Coast. Departures from the West Coast to other regions are captured in other categories.

MAINLINE

Our Mainline operations include Boeing 737 (B737) and Airbus A320 family (A320 and A321neo) jet service offered by Alaska. We offer extensive passenger service from the western U.S. throughout the contiguous United States, Alaska, Hawaii, Canada, Mexico and Costa Rica. Our largest concentrations of departures are in Seattle, Portland, and the Bay Area. We also offer cargo service throughout our network and have three dedicated cargo aircraft that operate primarily to and within the state of Alaska.

In 2020, we carried 12 million revenue passengers in our Mainline operations, down from 36 million in 2019 as travel demand was severely impacted from the COVID-19 pandemic. At December 31, 2020, our Mainline operating fleet consisted of 166 B737 jet aircraft and 31 Airbus A320 family jet aircraft compared to 166 B737 aircraft and 71 Airbus aircraft as of December 31, 2019.

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The percentage of Mainline passenger capacity by region and average stage length is presented below:

	2020		2019		2018		2017		2016(a)
West Coast(b)	22	%	23	%	23	%	24	%	30	%
Transcon/midcon	47	%	46	%	46	%	45	%	30	%
Hawaii and Costa Rica	12	%	16	%	15	%	15	%	19	%
Alaska	13	%	11	%	11	%	11	%	15	%
Mexico	6	%	4	%	5	%	5	%	6	%
Total	100	%	100	%	100	%	100	%	100	%
Average Stage Length (miles)	1,272		1,299		1,298		1,301		1,225

(a)Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.

(b)Category represents flying within the West Coast. Departures from the West Coast to other regions are captured in other categories.

REGIONAL

Our Regional operations consist primarily of flights operated by Horizon and SkyWest. In 2020, our Regional operations carried approximately 6 million revenue passengers, primarily in the states of Washington, Oregon, Idaho and California. Horizon is the largest regional airline in the Pacific Northwest and carries approximately 67% of Air Group's regional revenue passengers.

Based on 2020 Horizon passenger enplanements on regional aircraft, our most significant concentration of regional activity was in Seattle and Portland. At December 31, 2020, Horizon’s operating fleet consisted of 30 E175 jet aircraft and 32 Bombardier Q400 turboprop aircraft. The regional fleet operated by SkyWest consisted of 32 E175 aircraft.

The percentage of regional passenger capacity by region and average stage length is presented below:

	2020		2019		2018		2017		2016
West Coast	75	%	61	%	53	%	59	%	60	%
Pacific Northwest	9	%	10	%	11	%	13	%	16	%
Canada	1	%	3	%	3	%	4	%	5	%
Alaska	1	%	1	%	2	%	3	%	4	%
Midcon	14	%	25	%	30	%	21	%	15	%
Mexico	—		—	%	1	%	—	%	—	%
Total	100	%	100	%	100	%	100	%	100	%
Average Stage Length (miles)	524		490		468		422		381

FREQUENT FLYER PROGRAM

Alaska Airlines Mileage Plan™ provides a comprehensive suite of frequent flyer benefits. Miles can be earned by flying on our airlines or on one of our 17 airline partners, by using an Alaska Airlines credit card, or through other non-airline partners. Alaska's extensive list of airline partners includes carriers associated with each of the three major global alliances, making it easier for our members to earn miles and reach elite status in our frequent flyer program. Through Alaska and our global partners, Mileage Plan™ members have access to a large network of over 800 worldwide travel destinations. Further, members can receive up to 50,000 bonus miles upon signing up for the Alaska Airlines Visa Signature card and meeting a minimum spend threshold, and earn triple miles on Alaska Airlines purchases. Alaska Airlines Visa Signature cardholders and small business cardholders in the U.S., and Platinum and World Elite Mastercard cardholders in Canada, also receive an annual companion ticket that allows members to purchase an additional ticket for $99 plus taxes, with no restrictions or black-out dates, and a free first checked bag for up to six people traveling on the same itinerary. Earned miles can be redeemed for flights on our airlines, or our partner airlines, for hotel stays via mileageplanhotels.com, or for upgrades to first class on Alaska Airlines. We believe all of these benefits give our Mileage Plan™ members more value than competing programs.

Mileage Plan™ revenues, including those in the Passenger revenue income statement line item, represented approximately 20% of Air Group's total revenues in 2020. Mileage Plan™ helps drive revenue growth by attracting new customers, keeping existing customers actively engaged, and building customer loyalty through the benefits that we provide.

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AGREEMENTS WITH OTHER AIRLINES

Our agreements fall into three different categories: frequent flyer, codeshare and interline agreements. Frequent flyer agreements enable our Mileage PlanTM members to earn mileage credits and make redemptions on one of our 17 domestic and international partner airlines.

Codeshare agreements allow one or more marketing carriers to sell seats on a single operating carrier that services passengers under multiple flight numbers. The sale of codeshare seats can vary depending on the sale arrangement. For example, in a free-sale arrangement, the marketing carrier sells the operating carrier's inventory without any restriction; whereas in a block-space arrangement, a fixed amount of seats are sold to the marketing carrier by the operating carrier. The interchangeability of the flight code between carriers provides a greater selection of flights for customers, along with increased flexibility for mileage accrual and redemption.

Interline agreements allow airlines to jointly offer a competitive, single-fare itinerary to customers traveling via multiple carriers to a final destination. An interline itinerary offered by one airline may not necessarily be offered by the other, and the fares collected from passengers are prorated and distributed to interline partners according to preexisting agreements between the carriers. Frequent flyer, codeshare and interline agreements help increase our traffic and revenue by providing a more diverse network and schedule options to our guests.

Alaska has marketing alliances with a number of airlines that provide frequent flyer and codesharing opportunities. On March 31, 2021, Alaska intends to join the oneworld Alliance. Upon entry, Mileage Plan elite members will receive oneworld status, which enables the benefits of tier status recognition and eligible benefits across all 13 oneworld member airlines, providing access to over 1,000 destinations.

Alliances are an important part of our strategy and enhance our revenues by:

•offering our guests more travel destinations and better mileage credit and redemption opportunities, including elite qualifying miles on U.S. and international airline partners;

•providing a consistent and seamless guest experience when you are flying on Alaska or one of our partners;

•giving us access to more connecting traffic from other airlines; and

•providing members of our alliance partners’ frequent flyer programs an opportunity to travel on Alaska and our regional partners while earning mileage credit in our partners’ programs.

Most of our codeshare relationships are free-sale codeshares, where the marketing carrier sells seats on the operating carrier’s flights from the operating carrier’s inventory, but takes no inventory risk. Our marketing agreements have various termination dates, and one or more may be in the process of renegotiation at any time. Our codeshare and interline agreements generated 3%, 5%, and 5% of our total marketed revenues as of December 31, 2020, 2019 and 2018.

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A comprehensive summary of Alaska's alliances with other airlines is as follows:

		Codeshare
Airline	Frequent Flyer Agreement	Alaska Flight # on Flights Operated by Other Airline	Other Airline Flight # on Flights Operated by Alaska or CPA Partners
Aer Lingus	Yes	No	No
American Airlines	Yes	Yes	Yes
British Airways	Yes	No	Yes
Cathay Pacific Airways	Yes	No	Yes
Condor Airlines(a)	Yes	No	No
EL AL Israel Airlines	Yes	No	Yes
Emirates	Yes	No	Yes
Fiji Airways(a)	Yes	No	Yes
Finnair	Yes	No	Yes
Hainan Airlines	Yes	No	No
Icelandair	Yes	No	Yes
Japan Airlines	Yes	No	Yes
Korean Air	Yes	No	Yes
LATAM	Yes	No	Yes
Qantas	Yes	Yes	Yes
Qatar Airways	Yes	No	No
Singapore Airlines	Yes	No	No

(a)These airlines do not have their own frequent flyer program. However, Alaska's Mileage PlanTM members can earn and redeem miles on these airlines' route systems.

CARGO AND OTHER REVENUE

The Company provides freight and mail services (cargo). The majority of cargo services are provided to commercial businesses and the United States Postal Service. The Company satisfies cargo service performance obligations and recognizes revenue when the shipment arrives at its final destination, or is transferred to a third-party carrier for delivery.

The Company also earns other revenue for lounge memberships, hotel and car commissions, and certain other immaterial items not intrinsically tied to providing air travel to passengers. Revenue is recognized when these services are rendered and recorded as Cargo and other revenue.

GENERAL

The airline industry is highly competitive and subject to potentially volatile business cycles, resulting from factors such as a global pandemic, economic conditions, volatile fuel prices, a largely unionized work force, the need to finance large capital expenditures and the related availability of capital, government regulation—including taxes and fees, and potential aircraft incidents. Airlines have high fixed costs, primarily for wages, aircraft fuel, aircraft ownership and facilities rents. Because expenses of a flight do not vary significantly based on the number of passengers carried, a relatively small change in the number of passengers or in pricing has a disproportionate effect on an airline’s operating and financial results. In other words, a minor shortfall in expected revenue levels could cause a disproportionately negative impact to our operating and financial results. Passenger demand and ticket prices are, in large measure, influenced by the general state of the economy, current global economic and political events, and total available airline seat capacity.

In 2020, the COVID-19 pandemic presented the airline industry one of the greatest challenges in the history of aviation. In response to the various stay-at-home orders, local restrictions, and general uncertainty regarding air travel, U.S.-based airlines reduced domestic capacity when compared to 2019 by 75%. Although it is uncertain when the impacts of the pandemic will subside, competition to capture existing demand for travel in the interim is expected to be intense.

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FUEL

Our business and financial results are highly impacted by the price and the availability of aircraft fuel. Aircraft fuel expense includes raw fuel expense, or the price that we generally pay at the airport, including taxes and fees, plus the effect of mark-to-market adjustments to our fuel hedge portfolio as the value of that portfolio increases and decreases. The cost of aircraft fuel is volatile and outside of our control, and it can have a significant and immediate impact on our operating results. Over the past five years, aircraft fuel expense ranged from 14% to 25% of operating expenses. Fuel prices are impacted by changes in both the price of crude oil and refining costs and can vary by region in the U.S.

The price of crude oil on an average annual basis for the past five years has ranged from a low of $39 per barrel in 2020 to a high of $65 in 2018. For us, a $1 per barrel change in the price of oil equates to approximately $11 million of fuel cost annually based on 2020 consumption levels. Said another way, a one-cent change in our fuel price per gallon will impact our expected annual fuel cost by approximately $5 million per year.

Refining margins, which represent the price of refining crude oil into aircraft fuel, are a smaller portion of the overall price of jet fuel, but have also contributed to the price volatility in recent years. Over the last five years, average annual West Coast refining margin prices have fluctuated from a low of $11 per barrel in 2020 to a high of $26 per barrel in 2019.

Generally, West Coast jet fuel prices are somewhat higher and more volatile than prices in the Gulf Coast or on the East Coast. Our average raw fuel cost per gallon decreased 29% in 2020, after decreasing 6% in 2019 and increasing 28% in 2018.

The percentages of our aircraft fuel expense by crude oil and refining margins, as well as the percentage of our aircraft fuel expense of operating expenses, are as follows:

	2020		2019		2018		2017		2016(a)
Crude oil	64	%	62	%	68	%	66	%	69	%
Refining margins	16	%	28	%	25	%	23	%	20	%
Other(b)	20	%	10	%	7	%	11	%	11	%
Total	100	%	100	%	100	%	100	%	100	%
Aircraft fuel expense	14	%	24	%	25	%	22	%	18	%

(a)Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.

(b)Other includes gains and losses on settled fuel hedges, unrealized mark-to-market fuel hedge gains or losses, taxes and other into-plane costs.

We use crude oil call options as hedges against our exposure to the volatility of jet fuel prices. Call options effectively cap our price for crude oil, limiting our exposure to increasing fuel prices for about half of our planned fuel consumption. With call options, we are hedged against spikes in crude oil prices, and during a period of declines in crude oil prices, we only forfeit cash previously paid for hedge premiums. We begin hedging approximately 18 months in advance of consumption.

We believe that operating fuel-efficient aircraft and executing on operational best practices are the best hedges against high fuel prices. Maintaining a young, fuel-efficient fleet helps to reduce our fuel consumption rate, but also the amount of greenhouse gases and other pollutants that our aircraft emit.

COMPETITION

Competition in the airline industry can be intense and unpredictable. Our competitors consist primarily of other airlines and, to a lesser extent, other forms of transportation. Competition can be direct, in the form of another carrier flying the exact non-stop route, or indirect, where a carrier serves the same two cities non-stop from an alternative airport in that city or via an itinerary requiring a connection at another airport. We compete with other domestic airlines and a limited number of international airlines on nearly all of our scheduled routes. Our largest competitor is Delta Air Lines Inc. (Delta), who has significantly increased its capacity in Seattle since 2013. Approximately 75% of our capacity to and from Seattle competes with Delta. As we have grown in California and have expanded our transcontinental route offerings, United Airlines and Southwest Airlines have also become large competitors and have increased their capacity in markets we serve. Our California and transcontinental routes have a higher concentration of competitors when compared to our historical route structure, which was predominately concentrated in the Pacific Northwest. Although competitive capacity is expected to be down significantly in the first quarter of 2021 as compared to the first quarter of 2020, given the impacts of the COVID-19 pandemic, we expect once demand returns that we will face strong competition in all of our primary markets.

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We believe that the following competitive factors matter to guests when making an air travel purchase decision:

•Safety and guest health

Safety is our top priority and is at the core of everything we do. In 2021, Alaska was again ranked by AirlineRatings.com as the safest U.S. airline in the Top 20 safest airlines in the world. In 2020, we also received our 19th Diamond Award of Excellence from the Federal Aviation Administration (FAA), recognizing both Alaska and Horizon aircraft technicians for their commitment to training.

In 2020, our guests were acutely focused on the risk of potential contagion throughout their journey. In response, we partnered with health and safety experts to build our Next-Level Care initiative. In doing so, we have added nearly 100 measures through all stages of travel aimed at educating and helping our guests and employees to stay safe and to build confidence in flying. For our efforts, we received diamond level certification from the Airline Passenger Experience Association in 2020 for the health and safety standards we implemented.

•Fares and ancillary services

Ticket and other fee pricing is a significant competitive factor in the airline industry, and the increased availability of fare information on the internet allows travelers to easily compare fares and identify competitor promotions and discounts. Pricing is driven by a variety of factors including, but not limited to, market-specific capacity, market share per route/geographic area, cost structure, fare vs. ancillary revenue strategies, and demand.

For example, airlines often discount fares to drive traffic in new markets or to stimulate traffic when necessary to improve load factors. In addition, traditional network carriers have been able to reduce their operating costs through bankruptcies and mergers, while low-cost carriers have continued to grow their fleets and expand their networks, potentially enabling them to better control costs per available seat mile (the average cost to fly an aircraft seat one mile), which in turn may enable them to lower their fares. These factors can reduce our pricing power and that of the airline industry as a whole.

Domestic airline capacity is dominated by four large carriers, representing 79% of total seats. One of our advantages is that we offer low fares and a premium value product and experience. However, given the large concentration of industry capacity, some carriers in our markets may discount their fares substantially to develop or increase market share. Fares that are substantially below our cost to operate can be harmful if sustained over a long period of time. We will defend our position in our core markets and, if necessary, adjust capacity to better match supply with demand. Our strong financial position and low cost advantage have historically enabled us to offer competitive fares while still earning returns for our shareholders.

•Customer service and reputation

We compete with other airlines in areas of customer service such as on-time performance and guest amenities - including first class and other premium seating, quality of on-board products, aircraft type and comfort. In the fourth quarter of 2020, Alaska and Horizon were among the top in the industry for on-time performance.

All mainline aircraft in operating service have our refreshed interior configuration, which provides our guests with one consistent experience across the fleet. We also began installing next-generation Gogo inflight satellite-based Wi-Fi on our entire Boeing and Airbus fleets in 2018, which is now planned to be completed in early 2022.

Our employees are a critical element of our reputation. We have a highly engaged workforce that strives to provide genuine and caring service to our guests, both at the airport and onboard. We heavily emphasize our service standards with our employees through training and education programs and monetary incentives related to operational performance and guest satisfaction.

•Routes served, flight schedules, codesharing and interline relationships, and frequent flyer programs

We also compete with other airlines based on markets served, the frequency of service to those markets and frequent flyer opportunities. Some airlines have more extensive route structures than we do, and they offer significantly more international routes. In order to expand opportunities for our guests, we enter into codesharing and interline relationships with other airlines that provide reciprocal frequent flyer mileage credit and redemption privileges. These relationships allow us to offer our guests access to more destinations than we can on our own, gain exposure in markets we do not serve

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and allow our guests more opportunities to earn and redeem frequent flyer miles. Our Mileage Plan™ offers some of the most comprehensive benefits in the industry, allowing our members with the ability to earn and redeem miles on 17 partner carriers.

In 2020, we announced an expanded alliance with American, aimed at providing our West Coast guests with greater utility and international options, while providing American's international guests with increased connectivity options covered by the Alaska network. Coupled with the expanded alliance, we also accepted an invitation to join oneworld, with entrance expected on March 31, 2021. These new alliances allow our guests increased global network utility and benefits, along with increased opportunity to capture corporate sales when demand returns.

In addition to domestic or foreign airlines that we compete with on most of our routes, we compete with ground transportation in our short-haul markets. Our airlines also compete with technology, such as video conferencing and internet-based meeting tools. We expect that the advancement and increased utilization of these tools will eliminate the need for some business-related travel.

TICKET DISTRIBUTION

Our tickets are distributed through three primary channels:

•Direct to customer: Selling direct at alaskaair.com is less expensive than other channels. We believe direct sales through this channel are preferable from a branding and customer relationship standpoint because we can establish ongoing communication with the guest and tailor offers accordingly. As a result, we continue to take steps to drive more business to our website.

•Traditional and online travel agencies: Both traditional and online travel agencies typically use Global Distribution Systems (GDS) to obtain their fare and inventory data from airlines. Bookings made through these agencies result in a fee that is charged to the airline. Many of our large corporate customers require us to use these agencies. Some of our competitors do not use this distribution channel, or rely on it to a lesser extent than we do, and, as a result, have lower ticket distribution costs.

•Reservation call centers: Our call centers are located in Phoenix, AZ, Seattle, WA, and Boise, ID. We generally charge a $15 fee for booking reservations through the call centers.

Our sales by channel are as follows: 

	2020		2019		2018		2017		2016(a)
Direct to customer	73	%	65	%	63	%	62	%	61	%
Traditional agencies	12	%	20	%	22	%	22	%	23	%
Online travel agencies	9	%	11	%	11	%	11	%	11	%
Reservation call centers	6	%	4	%	4	%	5	%	5	%
Total	100	%	100	%	100	%	100	%	100	%

(a)Includes results for Virgin America for the period December 14, 2016 through December 31, 2016.

SEASONALITY AND OTHER FACTORS

Our results of operations for any interim period are not necessarily indicative of those for the entire year because our business is subject to seasonal fluctuations. In typical years, our profitability is generally lowest during the first and fourth quarters due principally to fewer departures and passengers. Profitability typically increases in the second quarter and then reaches its highest level during the third quarter as a result of vacation travel. This pattern was not followed in 2020 because of the COVID-19 pandemic, and 2021 may also experience abnormal trends as a result of the ongoing recovery. In a typical year, some of the impacts of seasonality are offset by travel from the West Coast to leisure destinations, like Hawai'i and Costa Rica, and expansion to leisure and business destinations in the mid-continental and eastern U.S.

Seasonality and operational fluctuations are not predictable in the current environment, and may permanently impact our typical experience of passenger loads post-pandemic. In a typical year, in addition to passenger loads, factors that could cause our quarterly operating results to vary include:  

•pricing initiatives by us or our competitors,

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•      changes in fuel costs,

•increases in competition at our primary airports,

•general economic conditions and resulting changes in passenger demand,

•increases or decreases in passenger and volume-driven variable costs, and

•air space and Air Traffic Control delays, particularly in Seattle and San Francisco.

Many of the markets we serve experience inclement weather conditions in the winter, causing increased costs associated with deicing aircraft, canceling flights and accommodating displaced passengers. Due to our geographic area of operations, we can be more susceptible to adverse weather conditions, particularly in the state of Alaska and the Pacific Northwest, than some of our competitors who may be better able to spread the impact of weather-related risks over larger route systems.

No material part of our business, or that of our subsidiaries, is dependent upon a single customer, or upon a few high-volume customers.

EMPLOYEES AND HUMAN CAPITAL

Our business is labor intensive. As of December 31, 2020, we employed 21,997 (16,643 at Alaska, 3,511 at Horizon, and 1,843 at McGee Air Services) active employees. Of those employees, 88% are full-time and 12% are part-time. Wages and benefits, including variable incentive pay, represented approximately 47% of our total non-fuel operating expenses in 2020 and 43% in 2019. Approximately 3,300 of our employees were on paid or unpaid leaves as of December 31, 2020 and are included in the totals above.

Most major airlines, including Alaska and Horizon, have employee groups that are covered by collective bargaining agreements. Airlines with unionized work forces generally have higher labor costs than carriers without unionized work forces, and they may not have the ability to adjust labor costs downward quickly enough to respond to new competition or slowing demand.

LABOR ORGANIZATIONS

At December 31, 2020, labor unions represented 86% of Alaska’s, 51% of Horizon’s, and 87% of McGee Air Services' employees.

Our relations with U.S. labor organizations are governed by the Railway Labor Act (RLA). Under the RLA, collective bargaining agreements do not expire, but instead become amendable as of a stated date. If either party wishes to modify the terms of any such agreement, it must notify the other party in the manner prescribed by the RLA and/or described in the agreement. After receipt of such notice, the parties must meet for direct negotiations, and if no agreement is reached, either party may request the National Mediation Board to initiate a process including mediation, arbitration, and a potential “cooling off” period that must be followed before either party may engage in self-help.

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Alaska’s union contracts at December 31, 2020 were as follows:

Union	Employee Group	Number of Employees	Contract Status
Air Line Pilots Association, International (ALPA)(a)	Pilots	2,974	Amendable 3/31/2020
Association of Flight Attendants (AFA)	Flight attendants	5,730	Amendable 12/17/2021
International Association of Machinists and Aerospace Workers (IAM)	Ramp service and stock clerks	644	Amendable 9/27/2024
IAM	Clerical, office and passenger service	3,971	Amendable 9/27/2024
Aircraft Mechanics Fraternal Association (AMFA)	Mechanics, inspectors and cleaners	855	Amendable 10/17/2023
Mexico Workers Association of Air Transport(b)	Mexico airport personnel	91	Amendable 9/29/2019
Transport Workers Union of America (TWU)	Dispatchers	85	Amendable 3/24/2021

(a)Negotiations with ALPA for an updated collective bargaining agreement are ongoing as of the date of this filing.

(b)As a result of amendments to Mexican labor laws, the Company has up to four years to make changes to the existing labor agreements. During that time, the existing contracts remain in place.

Horizon’s union contracts at December 31, 2020 were as follows:

Union	Employee Group	Number of Employees	Contract Status
International Brotherhood of Teamsters (IBT)	Pilots	793	Amendable 12/31/2024
AFA	Flight attendants	701	Amendable 4/30/2024
AMFA	Mechanics and related classifications	249	Amendable 12/15/2020
Unifor	Station personnel in  Vancouver and Victoria, BC, Canada	40	Expires 2/13/2022
TWU	Dispatchers	25	Amendable 1/29/2026

McGee Air Services union contract at December 31, 2020 was as follows:

Union	Employee Group	Number of Employees	Contract Status
IAM	Fleet and ramp service	1,598	Amendable 7/19/2023

Given the ongoing impacts of the COVID-19 pandemic, which is expected to have lasting impacts on our business into 2021, we have taken action to adjust the size of our workforce. To limit the number of involuntary furloughs, we initiated early-out and voluntary leave programs, as well as offered incentive leaves for Alaska pilots and aircraft mechanics. Approximately 3,900 employees opted in to these programs, including over 600 employees that volunteered for early-out separation from Alaska and Horizon. In addition, we reduced our non-union management positions by approximately 300 positions. As a result of these actions, we were able to reduce the number of involuntary furloughs to approximately 400, the majority of which have returned to work by December 31, 2020.

DIVERSITY AND INCLUSION

At Alaska, we believe that every person deserves respect regardless of race, ethnicity, capability, age, gender or sexual orientation. We are committed to advancing equity in all forms, and have set specific measurable goals to deliver on our commitments to racial equity. In 2020 we joined several other corporate leaders in creating the Washington Employers for Racial Equity which will work to achieve parity in hiring, pay and promotion for Black employees, support Black-owned businesses, and invest a combined $2 billion over the next five years to support racial equity. We also recently published our 2025 diversity, equity and inclusion goals which will hold us accountable to our commitments to increase racial diversity, increase our employee engagement scores around inclusion related topics, and create career pathways for at least 175,000 young people by supporting programs that empower and enable opportunity through a lens of racial equity.

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EXECUTIVE OFFICERS

The executive officers of Alaska Air Group, Inc. and its primary subsidiaries, Alaska Airlines, Inc. and Horizon Air Industries, who have significant decision-making responsibilities, their positions and their respective ages are as follows: 

Name	Position	Age	Air Group or Subsidiary Officer Since
Bradley D. Tilden	Chairman and Chief Executive Officer of Alaska Air Group, Inc., Chairman and Chief Executive Officer of Alaska Airlines, Inc., Chairman of Horizon Air Industries, Inc.	60	1994
Shane R. Tackett	Executive Vice President/Finance and Chief Financial Officer of Alaska Air Group, Inc. and Alaska Airlines, Inc.	42	2011
Kyle B. Levine	Senior Vice President Legal, General Counsel and Corporate Secretary of Alaska Air Group, Inc., Alaska Airlines, Inc. and Horizon Air Industries, Inc., and Chief Ethics and Compliance Officer of Alaska Air Group, Inc.	49	2016
Benito Minicucci	President of Alaska Airlines, Inc.	54	2004
Joseph A. Sprague	President of Horizon Air Industries, Inc.	52	2019
Gary L. Beck	Executive Vice President and Chief Operating Officer of Alaska Airlines, Inc.	73	2018
Andrew R. Harrison	Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc.	51	2008
Andrea L. Schneider	Senior Vice President People of Alaska Airlines, Inc.	55	1998
Diana Birkett-Rakow	Vice President External Relations of Alaska Airlines, Inc.	43	2017

Mr. Tilden joined Alaska Airlines in 1991, became Controller of Alaska Air Group and Alaska Airlines in 1994 and was named Vice President/Finance at Alaska Airlines in January 1999 and at Alaska Air Group in February 2000. He was elected Alaska Airlines Chief Financial Officer in February 2000, Executive Vice President/Finance and Chief Financial Officer of both companies in January 2002 and Executive Vice President/Finance and Planning of Alaska Airlines in April 2007. Mr. Tilden was named President of Alaska Airlines in December 2008 and, in May 2012, he was elected President and CEO of Alaska Air Group and Alaska Airlines and CEO of Horizon Air. He leads Air Group’s Management Executive Committee and was elected to the Air Group Board in 2010 and became Chairman of the Board in January 2014. Mr. Tilden will retire effective March 31, 2021 and Mr. Minicucci will assume the role of Chief Executive Officer. Mr. Tilden will remain as Board Chair.

Mr. Tackett was elected Chief Financial Officer in March 2020 and is a member of Air Group’s Management Executive Committee. Mr. Tackett joined Alaska Airlines in 2000 and has served in a number of roles including Managing Director Financial Planning and Analysis (2008-2010), Vice President Labor Relations (2010-2015), Vice President Revenue Management (2016), Senior Vice President Revenue and E-commerce (2017-2018), and Executive Vice President Planning and Strategy (2018-2020).

Mr. Levine was elected Senior Vice President Legal and General Counsel of Alaska Air Group and Alaska Airlines in January 2020 and is a member of Air Group’s Management Executive Committee. Mr. Levine was previously Vice President Legal and General Counsel of Alaska Air Group and Alaska Airlines (January 2016 - January 2020). He was elected Corporate Secretary of Alaska Air Group and Alaska Airlines in August 2017 and of Horizon Air in January 2020. Mr. Levine joined Alaska Airlines in February 2006 as a Senior Attorney. He also served as Associate General Counsel and Managing Director Commercial Law and General Litigation from July 2009 to February 2011 and, subsequently, as Deputy General Counsel and Managing Director of Legal at Alaska Airlines from February 2011 to January 2016.

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Mr. Minicucci was elected President of Alaska Airlines in May 2016. Prior to that he was Executive Vice President/Operations of Alaska Airlines from December 2008 to May 2016, and was Alaska’s Chief Operating Officer from December 2008 until November 2019. He was Chief Executive Officer of Virgin America Inc. from December 2016 to July 2018, when Virgin America was merged into Alaska. He is a member of Air Group’s Management Executive Committee, and was elected to the Alaska Air Group Board of Directors in May 2020. Mr. Minicucci will assume the role of Chief Executive Officer concurrent with Mr. Tilden's retirement on March 31, 2021.

Mr. Sprague was elected President of Horizon Air effective November 6, 2019 and is a member of Air Group’s Management Executive Committee. Mr. Sprague previously served as Senior Vice President External Relations of Alaska Airlines from May 2014 until his resignation in September 2017. Mr. Sprague also served Alaska Airlines as Vice President of Marketing from March 2010 to April 2014 and Vice President of Alaska Air Cargo from April 2008 to March 2010.

Mr. Harrison was elected Executive Vice President and Chief Commercial Officer in August 2015. He is a member of Air Group's Management Executive Committee. Mr. Harrison joined Alaska Airlines in 2003 as the Managing Director of Internal Audit and was elected Vice President of Planning and Revenue Management in 2008. He was elected Senior Vice President of Planning and Revenue Management in 2014 and Executive Vice President and Chief Revenue Officer in February 2015.

Mr. Beck was elected Executive Vice President and Chief Operating Officer of Alaska Airlines effective November 6, 2019 and is a member of Air Group’s Management Executive Committee. Prior to that he served as President and CEO of Horizon Air from January 2018 – November 2019. Mr. Beck previously served as Vice President, Flight Operations at Alaska Airlines, Inc. until retiring in June 2015. Following that date, he provided consulting services to Alaska Airlines, Inc. in connection with the integration to a single operating certificate with Virgin America Inc.

Ms. Schneider was elected Senior Vice President of People at Alaska Airlines in June 2019 and is a member of Air Group’s Management Executive Committee. Ms. Schneider was previously Vice President of People at Alaska (August 2017-May 2019) Vice President of Inflight Services at Alaska (2011-2017), later also taking responsibility for Call Centers at Alaska (February 2017). She began her career at Alaska as Manager of Financial Accounting in 1989. Since that time, she has held a number of positions.

Ms. Birkett-Rakow was elected Vice President of External Relations at Alaska Airlines in September 2017 and became a member of Air Group’s Management Executive Committee at that time.

REGULATION

GENERAL

The airline industry is highly regulated, most notably by the federal government. The Department of Transportation (DOT), the the Transportation Security Administration (TSA) and the FAA exercise significant regulatory authority over air carriers.

•DOT: A domestic airline is required to hold a certificate of public convenience and necessity issued by the DOT in order to provide passenger and cargo air transportation in the U.S. Subject to certain individual airport capacity, noise and other restrictions, this certificate permits an air carrier to operate between any two points in the U.S. Certificates do not expire, but may be revoked for failure to comply with federal aviation statutes, regulations, orders or the terms of the certificates. While airlines are permitted to establish their own fares without government regulation, the DOT has jurisdiction over the approval of international codeshare agreements, marketing alliance agreements between major domestic carriers, international and some domestic route authorities, Essential Air Service market subsidies, carrier liability for personal or property damage, and certain airport rates and charges disputes. International treaties may also contain restrictions or requirements for flying outside of the U.S. and impose different carrier liability limits than those applicable to domestic flights. The DOT has been active in implementing a variety of “consumer protection” regulations, covering subjects such as advertising, passenger communications, denied boarding compensation and tarmac delay response. Airlines are subject to enforcement actions that are brought by the DOT for alleged violations of consumer protection and other economic regulations. We are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate.

•FAA: The FAA, through Federal Aviation Regulations (FARs), generally regulates all aspects of airline operations, including establishing personnel, maintenance and flight operation standards. Domestic airlines are required to hold a valid air carrier operating certificate issued by the FAA. Pursuant to these regulations, we have established, and the FAA has approved, our operations specifications and a maintenance program for each type of aircraft we operate. Each maintenance program provides for the ongoing maintenance of the relevant aircraft type, ranging from frequent routine inspections to

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major overhauls. Periodically, the FAA issues airworthiness directives (ADs) that must be incorporated into our aircraft maintenance program and operations. All airlines are subject to enforcement actions that are brought by the FAA from time to time for alleged violations of FARs or ADs. At this time, we are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate.

•TSA: Airlines serving the U.S. must operate a TSA-approved Aircraft Operator Standard Security Program (AOSSP), and comply with TSA Security Directives (SDs) and regulations. Under TSA authority, we are required to collect a September 11 Security Fee of $5.60 per one-way trip from passengers and remit that sum to the government to fund aviation security measures. Airlines are subject to enforcement actions that are brought by the TSA for alleged violations of the AOSSP, SDs or security regulations. We are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate.

The Department of Justice and DOT have jurisdiction over airline antitrust matters. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services. Labor relations in the air transportation industry are regulated under the RLA. To the extent we continue to fly to foreign countries and pursue alliances with international carriers, we may be subject to certain regulations of foreign agencies and international treaties.

We are also subject to the oversight of the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters. The OSHA and other federal agencies have been authorized to create and enforce regulations that have an impact on our operations. In addition to these federal activities, various states have been delegated certain authorities under these federal statutes. Many state and local governments have adopted employee safety and health laws and regulations. We maintain our safety and health programs in order to meet or exceed these requirements.

ENVIRONMENTAL

We are also subject to various laws and government regulations concerning environmental matters, both domestically and internationally. Domestic regulations that have an impact to our operations include the Airport Noise and Capacity Act of 1990, the Clean Air Act, Resource Conservation and Recovery Act, Clean Water Act, Safe Drinking Water Act, the Comprehensive Environmental Response and Compensation Liability Act, the National Environmental Policy Act (including Environmental Justice), Emergency Planning and Community Right-to-Know Act and the Toxic Substances Control Act. Many state and local environmental regulations exceed these federal regulations. In the future we expect there to be incremental legislation aimed at further reduction of greenhouse gas emissions, hazardous substances and additional focus on environmental justice.

The Airport Noise and Capacity Act recognizes the rights of airport operators with noise problems to implement local noise abatement programs so long as they do not interfere unreasonably with interstate or foreign commerce or the national air transportation system. Authorities in several cities have established aircraft noise reduction programs, including the imposition of nighttime curfews. We believe we have sufficient scheduling flexibility to accommodate local noise restrictions.

The impacts of carbon dioxide emissions generated by the airline industry and the impact of those emissions on climate change have faced increased scrutiny. Further, we know that attention to climate issues and impact have grown amongst our employees and guests. We recognize that our operations have an impact on the environment, and are responsible for addressing those impacts through our own operations, as well as in partnership with governments, industry, manufacturers, employees and guests to enable new technology for the long-term.

The airline industry committed to carbon neutral growth starting in 2020. Through this commitment we have joined participation in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), a global, market-based emissions offset program issued by the International Civil Aviation Organization to be carbon neutral for international growth. As a result of the COVID-19 pandemic, the growth baseline year was modified and set to 2019 during the initial phase. This does not have a direct impact on domestic flights, however the EPA finalized a rule in 2020 on aircraft emission standards which aligns with the international agreements. Additional commitments to decarbonize through the Paris Climate Accord and domestic carbon neutrality remain a potential impact to our industry.

Our commitment to sustainability is anchored by our efforts to reduce our carbon emissions from jet fuel. To mitigate emissions and keep with industry commitments towards reductions, we have taken a number of key actions, including transitioning to more fuel-efficient aircraft fleets, such as the Boeing 737 MAX, utilizing fuel-efficient winglets, and flying efficient flight paths. Alaska has joined with others at Seattle Tacoma International Airport and San Francisco International Airport to strengthen the pathway to commercially viable sustainable aviation fuel. Through an offtake agreement with Neste in San Francisco, Alaska has started to use sustainable aviation fuel on an ongoing basis to reduce the lifecycle carbon dioxide emissions of our flights and will help comply with CORSIA obligations. In 2020, we also strengthened our commitment to emissions reduction through a partnership with Microsoft. Alaska Airlines and Microsoft are partnering to use sustainable

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aviation fuel to reduce the climate change impact of Microsoft employee travel on the top routes their employees fly. In addition, Alaska and Horizon continue to utilize electric ground equipment at airports when we have the infrastructure to support it.

Overall, the total Alaska mainline greenhouse gas emissions intensity trend has improved significantly since 2009 with our goals to reduce emissions intensity. More broadly, we know that being responsible for our impact is a critical part of delivering value for all those who depend on us – employees, communities, guests, and owners – over the long term. To that end, we are focused on addressing the breadth of our most significant environmental impacts across emissions and waste, as well as important social impacts. Alaska leads the industry in inflight recycling and has reduced waste to landfill by over 60% per passenger over the past decade. In 2018, we were the first U.S. airline to remove plastic straws and stir sticks from our aircraft and in 2019, we launched a campaign called #FillBeforeYouFly to engage our employees and guests in reducing plastic waste. For more details on Alaska’s emission reductions programs as well as status on other key environmental initiatives, see Alaska’s annual Sustainability Reports and environmental performance metrics on our website,

www.flysustainably.com/reports. The information contained on our sustainability website is not a part of this annual report on Form 10-K.

Although we do not currently anticipate that specific environmental regulation will have a material effect on our financial condition, results of operations or cash flows, new regulations, related to our existing or past operations, or compliance issues could have the impact to harm our financial condition, results of operations or cash flows in future periods.

INSURANCE

We carry insurance of types customary in the airline industry and in amounts deemed adequate to protect our interests and property and to comply both with federal regulations and certain credit and lease agreements. The insurance policies principally provide coverage for Airline Hull, Spares and Comprehensive Legal Liability, War and Allied Perils, and Workers’ Compensation. In addition, we currently carry a Cyber Insurance policy in the event of security breaches from malicious parties.

We believe that our emphasis on safety and our state-of-the-art flight deck safety technology help to control the cost of our insurance.

WHERE YOU CAN FIND MORE INFORMATION

Our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available on our website at www.alaskaair.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the Securities and Exchange Commission. The information contained on our website is not a part of this annual report on Form 10-K.

GLOSSARY OF TERMS

Adjusted net debt - long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities

Adjusted net debt to EBITDAR - represents adjusted net debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or “capacity”; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control

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Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus capitalized operating lease liabilities) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737, Airbus 320 family and Airbus 321neo jets and all associated revenues and costs

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan™ and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon and SkyWest. Financial results in this segment include actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest under the respective capacity purchased arrangement (CPA). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, and other administrative costs incurred by Alaska and on behalf of Horizon

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

ITEM 1A. RISK FACTORS

If any of the following occurs, our business, financial condition and results of operations could be harmed. The trading price of our common stock could also decline. We operate in a continually changing business environment. In this environment, new risks may emerge, and already identified risks may vary significantly in terms of impact and likelihood of occurrence. Management cannot predict such developments, nor can it assess the impact, if any, on our business of such new risk factors or of events described in any forward-looking statements.

We have adopted an enterprise-wide risk analysis and oversight program designed to identify the various risks faced by the organization, assign responsibility for managing those risks to individual executives as well as align these risks with Board oversight. These enterprise-wide risks have been aligned to the risk factors discussed below.

COVID-19

The global pandemic caused by COVID-19, and related measures implemented to combat its spread has had, and is expected to continue to have, a material adverse effect on the Company’s operations, financial position and liquidity.

In late 2019, an outbreak of novel coronavirus and its resulting disease (COVID-19) was detected in Wuhan, China. Since that time, COVID-19 has spread rapidly throughout the globe, including within the United States, where millions of cases have been positively diagnosed to date. In March 2020, the President of the United States declared a national emergency in response to the rapid spread, and all markets we serve implemented some measure of travel restriction or stay-at-home order. These orders, combined with a wariness among the public of travel by aircraft due to perceived risk of infection, resulted in an unprecedented decline in business and leisure travel. Cancellations of conventions and conferences, sporting events, concerts and other similar events, as well as the closure of popular tourist destinations, contributed to this decline. This reduction in demand had a material adverse impact on our revenues and results of operations. As there is uncertainty of when these restrictions will be lifted or when demand may return, we expect to continue to see negative impacts from the COVID-19 pandemic on our business. Our operations could be negatively affected further if our employees are quarantined or sickened as a result of exposure to COVID-19, or if they are subject to additional governmental COVID-19 stay-at-home health orders or similar

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restrictions. Measures restricting the ability of our airport or inflight employees to come to work may cause further deterioration in our service or operations, all of which could negatively affect our business. Additionally, the availability of COVID-19 vaccines and the timing of inoculation in each state we serve will impact the willingness of the public to travel and our ability to recover from the impacts of the pandemic.

In response to the pandemic, we implemented, and continue to refine and adjust, a comprehensive strategy to mitigate the impacts on our business. This strategy may itself have negative impacts on our business and operations. One such action is the elimination of change fees for first and main cabin fares and the ability to rebook travel for an extended period beyond standard rebooking terms. The loss of change fee revenue, combined with ongoing significant ticket cancellation activity, has adversely impacted our revenues and liquidity.

We have also implemented significant cash preservation and cost reduction strategies in response to the impacts of COVID-19. These strategies include, but are not limited to, capital expenditure reductions, solicitation of voluntary short- and long-term leaves of absence and renegotiation of contractual terms and conditions with vendors. These measures, while helpful in slowing the rate at which we utilize our cash, are not expected to fully offset the loss of cash as a result of decreased ticket sales. Further, should we not be able to recall and provide training to those accepting long-term leaves of absence to provide staffing to match our expectations of capacity, we may not be able to capitalize on the return of demand. This may have a negative impact on our financial results.

At this time, we are unable to predict what impact the pandemic will have on future customer behavior. Future business travel may be impacted by widespread use of video conferencing or the reduction of business travel budgets. Travelers may also be more reluctant in general to travel, and the Company may need to expend significant resources to educate and demonstrate that air travel does not pose a health risk. In addition, the Company has incurred, and will continue to incur COVID-19 related costs for enhanced aircraft cleaning and additional procedures to limit transmission among employees and guests. Although these procedures are elective, the industry may be subject to mandated cleaning and safety measures in the future, which may be costly and take a significant amount of time to implement. Additionally, the availability of COVID-19 vaccines and the timing of inoculation in each state we serve will impact the willingness of the public to travel. These contingencies, individually and in the aggregate, could have a material adverse impact on our business.

We have accepted certain conditions by accepting funding under the Payroll Support Program of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

The CARES Act was signed into law on March 27, 2020, providing U.S. airlines and related businesses the ability to access liquidity in the form of grants, loans, loan guarantees and other investments by the U.S. government.

In 2020, the Company, Alaska, Horizon, and McGee entered agreements with the United States Department of the Treasury (Treasury) to secure approximately $1.1 billion of funding under the CARES Act Payroll Support Program (PSP), of which $290 million is in the form of an unsecured senior term loan payable over ten years. On January 15, 2021, Alaska and Horizon finalized agreements with the Treasury and accepted partial disbursement of funds through an extended round of PSP funding, made available under the Consolidated Appropriations Act, 2021. PSP proceeds must be used exclusively for employee payroll and benefits expenses in accordance with the terms and conditions of the PSP agreements and the applicable provisions of the CARES Act.

Also in 2020, the Company and its airline subsidiaries entered agreements with the Treasury to obtain access to term loans of approximately $1.9 billion under the CARES Act loan program. Funds drawn under the loan program must be secured with assets owned by Alaska or Horizon.

To date, the Company has drawn $135 million from the loan facility, and may, at its option, borrow additional amounts in up to two subsequent borrowings until May 28, 2021. All proceeds must be used for general corporate purposes and operating expenses in accordance with the terms and conditions of the loan agreements and the applicable provisions of the CARES Act. All borrowings are pre-payable in whole or in part and are ultimately due and payable on September 26, 2025 (or March 28, 2025 with respect to the portion of the loan, if any, secured with certain loyalty program assets).

In addition to repayment commitments, we are subject to the following conditions under our CARES Act PSP and loan agreements:

•Alaska, Horizon and McGee have to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits for non-officer employees through March 31, 2021;

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•Alaska and Horizon may have to maintain DOT-prescribed levels of air service to markets they served as of March 1, 2020, through March 1, 2022;

•The Company may not repurchase its common stock or pay dividends on its common stock until the later of March 31, 2022, or one year after secured loan funds are repaid;

•The Company must meet minimum liquidity and collateral coverage ratio requirements until the secured loan funds are repaid;

•Compensation and severance payments for officers and employees who earned more than $425,000 in total compensation in 2019 will be subject to maximum limitations through the later of October 1, 2022, or one year after secured loan funds are repaid; and

•The Company must maintain certain internal controls and records, and provide any additional reporting required by the U.S. government, relating to PSP and loan funding.

These conditions may adversely affect the Company’s profitability, our ability to negotiate favorable terms with loyalty partners, our attractiveness to investors, and our ability to compensate at market-competitive levels and retain key personnel.

SAFETY, COMPLIANCE AND OPERATIONAL EXCELLENCE

Our reputation and financial results could be harmed in the event of an airline accident or incident.

An accident or incident involving one of our aircraft or an aircraft operated by one of our codeshare partners or CPA carriers could involve loss of life and result in a loss of confidence in our Company by the flying public and/or aviation authorities. We could experience significant claims from injured passengers, bystanders and surviving relatives, as well as costs for the repair or replacement of a damaged aircraft and temporary or permanent loss from service. We maintain liability insurance in amounts and of the type generally consistent with industry practice, as do our codeshare partners and CPA carriers. However, the amount of such coverage may not be adequate to fully cover all claims, and we may be forced to bear substantial economic losses from such an event. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our business and financial results. Moreover, any aircraft accident or incident, even if it is fully insured and does not involve one of our aircraft, could cause a public perception that our airlines or the aircraft we or our partners fly are less safe or reliable than other transportation alternatives. This would harm our business.

We announced plans to replace many of our Airbus aircraft with Boeing 737 MAX aircraft, and in January 2021 we took delivery of our first MAX aircraft, which is expected to enter revenue service in March 2021. Although the grounding of the aircraft was lifted in late 2020 following an extensive recertification process, there is potential the traveling public may not trust the aircraft for safe operation. As a result, we may be required to expend significant resources in restoring guest confidence on the safe operation of the 737 MAX aircraft. Failure to address guest confidence may negatively harm our business, growth plans and results of operations.

Our operations are often affected by factors beyond our control, including delays, cancellations and other conditions, which could harm our business, financial condition and results of operations.

As is the case for all airlines, our operations often are affected by delays, cancellations and other conditions caused by factors largely beyond our control.

Factors that might impact our operations include:

•contagious illness and fear of contagion;

•congestion, construction, and/or space constraints at airports, specifically in our hub locations of Seattle, Los Angeles, and San Francisco;

•air traffic control problems;

•adverse weather conditions;

•lack of operational approval (e.g. new routes, aircraft deliveries, etc.);

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•increased security measures or breaches in security;

•changes in international treaties concerning air rights;

•international or domestic conflicts or terrorist activity; and

•other changes in business conditions.

Due to the concentration of our flights in the Pacific Northwest and Alaska, we believe a large portion of our operation is more susceptible to adverse weather conditions than other carriers. A general reduction in airline passenger traffic as a result of any of the above-mentioned factors could harm our business, financial condition and results of operations.

Changes in government regulation imposing additional requirements and restrictions on our operations could increase our operating costs and result in service delays and disruptions.

Airlines are subject to extensive regulatory and legal requirements, both domestically and internationally, that require substantial compliance costs. In the last several years, Congress has passed laws, and the U.S. DOT, the TSA and the FAA have issued regulations that have required significant expenditures relating to maintenance of aircraft, operation of airlines and broadening of consumer protections. As a result of the COVID-19 pandemic, we expect further regulation of on-board health and hygiene matters.

Similarly, there are a number of legislative and regulatory initiatives and reforms at the federal, state and local levels. These initiatives include increasingly stringent laws to protect the environment, minimum wage requirements, mandatory paid sick or family leave, and health care mandates. These laws could affect our relationship with our workforce and the vendors that serve our airlines and cause our expenses to increase without an ability to pass through these costs. New initiatives with employer-funded costs, specifically those impacting Washington State, could disproportionately increase our cost structure as compared to our competitors. In recent years, the airline industry has experienced an increase in litigation over the application of state and local employment laws, particularly in California. Application of these laws may result in operational disruption, increased litigation risk, and impact on negotiated labor agreements. Additionally, compliance with existing and future regulation around environmental laws, including those involving aircraft emissions and environmental investigation and remediation costs, could require significant expenditures or result in significant fines or penalties.

Almost all commercial service airports are owned and/or operated by units of local or state governments. Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity at an affordable cost. Many airports have increased their rates and charges to air carriers to reflect higher costs of security, updates to infrastructure and other. Additional laws, regulations, taxes, airport rates and airport charges may be occasionally proposed that could significantly increase the cost of airline operations or reduce the demand for air travel. Although lawmakers may impose these additional fees and view them as “pass-through” costs, we believe that a higher total ticket price will influence consumer purchase and travel decisions and may result in an overall decline in passenger traffic, which would harm our business. Additionally, changes in laws and regulations at the local level may be difficult to track and maintain compliance. Any instances of non-compliance could result in additional fines and fees.

The airline industry continues to face potential security concerns and related costs.

Terrorist attacks, the fear of such attacks or other hostilities involving the U.S. could have a significant negative effect on the airline industry, including us, and could:

•significantly reduce passenger traffic and yields as a result of a dramatic drop in demand for air travel;

•significantly increase security and insurance costs;

•make war risk or other insurance unavailable or extremely expensive;

•increase fuel costs and the volatility of fuel prices;

•increase costs from airport shutdowns, flight cancellations and delays resulting from security breaches and perceived safety threats; and

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•result in a grounding of commercial air traffic by the FAA.

The occurrence of any of these events would harm our business, financial condition and results of operations.

We rely on third-party vendors for certain critical activities, which could expose us to disruptions in our operation or unexpected cost increases.

We rely on outside vendors for a variety of services and functions critical to our business, including airframe and engine maintenance, regional flying, ground handling, fueling, computer reservation system hosting, telecommunication systems, information technology infrastructure and services, and deicing, among others.

Even though we strive to formalize agreements with these vendors that define expected service levels, our use of outside vendors increases our exposure to several risks. In the event that one or more vendors go into bankruptcy, ceases operation or fails to perform as promised, replacement services may not be readily available at competitive rates, or at all. If one of our vendors fails to perform adequately, we may experience increased costs, delays, maintenance issues, safety issues or negative public perception of our airline. Vendor bankruptcies, unionization, regulatory compliance issues or significant changes in the competitive marketplace among suppliers could adversely affect vendor services or force us to renegotiate existing agreements on less favorable terms. These events could result in disruptions in our operations or increases in our cost structure.

STRATEGY

The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on our business. If we cannot successfully compete in the marketplace, our business, financial condition, and operating results will be materially adversely affected.

The U.S. airline industry is characterized by substantial price competition. In recent years, the market share held by low-cost carriers and ultra low-cost carriers has increased significantly and is expected to continue to increase. Airlines also compete for market share by increasing or decreasing their capacity, route systems, and the number of markets served. Several of our competitors have increased their capacity in markets we serve, particularly in our key West Coast markets. This dynamic may be exacerbated by actions from airlines as we compete to attract passengers during the recovery from the COVID-19 pandemic. The resulting increased competition in both domestic and international markets may have a material adverse effect on our results of operations, financial condition, or liquidity.

We strive toward maintaining and improving our competitive cost structure by setting aggressive unit cost-reduction goals. This is an important part of our business strategy of offering the best value to our guests through low fares while achieving acceptable profit margins and return on capital. If we are unable to maintain our cost advantage over the long-term and achieve sustained targeted returns on invested capital, we will likely not be able to grow our business in the future or weather industry downturns. Therefore, our financial results may suffer.

The airline industry may undergo further restructuring, consolidation, or the creation or modification of alliances or joint ventures, any of which could have a material adverse effect on our business, financial condition and results of operations.

We continue to face strong competition from other carriers due to restructuring, consolidation, and the creation and modification of alliances and joint ventures. Since deregulation, both the U.S. and international airline industries have experienced consolidation through a number of mergers and acquisitions. Carriers may also improve their competitive positions through airline alliances, slot swaps/acquisitions and/or joint ventures. Certain airline joint ventures further competition by allowing airlines to coordinate routes, pool revenues and costs, and enjoy other mutual benefits, achieving many of the benefits of consolidation.

Our concentration in certain markets could cause us to be disproportionately impacted by adverse changes in circumstances in those locations.

Our strategy includes being the premier carrier for people living on the West Coast. This results in a high concentration of our business in key West Coast markets. A significant portion of our flights occur to and from our Seattle, Portland, and Bay Area hubs. In 2020, passengers to and from Seattle, Portland, and the Bay Area accounted for 84% of our total guests.

We believe that concentrating our service offerings in this way allows us to maximize our investment in personnel, aircraft and ground facilities, as well as to gain greater advantage from sales and marketing efforts in those regions. As a result, we remain highly dependent on our key markets. Our business could be harmed by any circumstances causing a reduction in demand for

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air transportation in our key markets. An increase in competition in our key markets could also cause us to reduce fares or take other competitive measures that, if sustained, could harm our business, financial condition and results of operations.

We are dependent on a limited number of suppliers for aircraft and parts.

Alaska is dependent on Boeing and Airbus as its sole suppliers for aircraft and many aircraft parts. Horizon is similarly dependent on De Havilland and Embraer. Additionally, each carrier is dependent on sole suppliers for aircraft engines for each aircraft type. As a result, we are more vulnerable to issues associated with the supply of those aircraft and parts including design defects, mechanical problems, contractual performance by the manufacturers, or adverse perception by the public that would result in customer avoidance or in actions by the FAA. Should we be unable to resolve known issues with certain of our aircraft or engine suppliers, it may result in the inability to operate our aircraft for extended periods. Additionally, if COVID-19 causes our limited vendors to have performance problems, reduced or ceased operations, bankruptcies, or other events causing them to be unable to fulfill their commitments to us, our operations and business could be materially adversely affected.

Should these suppliers be unable to manufacture or deliver new aircraft, we may not be able to grow our fleet at our intended rate, which could impact our financial position. Following the recertification of the 737 MAX aircraft, Boeing has a significant production backlog which may impact the timing of deliveries. We have 32 737-9 MAX aircraft on order, with 13 aircraft deliveries currently anticipated in 2021. If we are unable to receive these aircraft and future aircraft in a timely manner, our growth plans could be significantly impacted. Additionally, further consolidation amongst aircraft and aircraft parts manufacturers could further limit the number of suppliers. This could result in an inability to operate our aircraft or instability in the foreign countries in which the aircraft and its parts are manufactured.

We rely on partner airlines for codeshare and frequent flyer marketing arrangements.

Our airlines are parties to marketing agreements with a number of domestic and international air carriers, or “partners," including the West Coast International Alliance (WCIA) with American, which was announced in 2020. These agreements provide that certain flight segments operated by us are held out as partner “codeshare” flights and that certain partner flights are held out for sale as Alaska codeshare flights. In addition, the agreements generally provide that members of Alaska’s Mileage Plan™ program can earn credit on or redeem credit for partner flights and vice versa. We receive revenue from flights sold under codeshare and from interline arrangements. In addition, we believe that the frequent flyer arrangements are an important part of our loyalty program. The loss of a significant partner through bankruptcy, consolidation, or otherwise, could have a negative effect on our revenues or the attractiveness of our Mileage Plan™ program, which we believe is a source of competitive advantage.

We routinely engage in analysis and discussions regarding our own strategic position, including alliances, codeshare arrangements, interline arrangements, and frequent flyer program enhancements, and will continue to have future discussions with other airlines regarding similar activities. If other airlines participate in consolidation or reorganization, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of ours and potentially impairing our ability to realize expected benefits from our own strategic relationships.

Our impending entry into the oneworld global alliance is expected to provide us with many benefits, including the ability to seamlessly connect our guests to more points around the globe, as well as better serve corporate partners. Entry into the alliance may cause us to lose existing codeshare agreements with partners who are not oneworld members, and could limit options to bring non-oneworld carrier partners into our Mileage PlanTM program. Further, maintaining the WCIA with another U.S. airline may expose us to additional regulatory scrutiny. Failure to appropriately manage these partnerships and alliances could negatively impact future growth plans and our financial position.

Economic uncertainty, or another recession, would likely impact demand for our product and could harm our financial condition and results of operations.

The airline industry, which is subject to relatively high fixed costs and highly variable and unpredictable demand, is particularly sensitive to changes in economic conditions. We are also highly dependent on U.S. consumer confidence and the health of the U.S. economy. Unfavorable U.S. economic conditions have historically driven changes in travel patterns and have resulted in reduced spending for both leisure and business travel. For some consumers, leisure travel is a discretionary expense, and shorter distance travelers, in particular, have the option to replace air travel with surface travel. Businesses are able to forgo air travel by using communication alternatives such as video conferencing or may be more likely to purchase less expensive tickets to reduce costs, which can result in a decrease in average revenue per seat. Unfavorable economic conditions also hamper the ability of airlines to raise fares to counteract increased fuel, labor and other costs. Unfavorable or even uncertain economic conditions could negatively affect our financial condition and results of operations.

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INFORMATION TECHNOLOGY

We rely heavily on automated systems to operate our business, and a failure to invest in new technology or a disruption of our current systems or their operators could harm our business.

We depend on automated systems to operate our business, including our airline reservation system, our telecommunication systems, our website, our maintenance systems, our check-in kiosks, mobile devices, and other systems. Substantially all of our tickets are issued to our guests as electronic tickets, and the majority of our guests check-in using our website, airport kiosks, or our mobile application. We depend on our reservation system to be able to issue, track and accept these electronic tickets. In order for our operations to work efficiently, we must continue to invest in new technology to ensure that our website, reservation system and check-in systems are able to accommodate a high volume of traffic, maintain information security and deliver important flight information. Substantial or repeated website, reservations system or telecommunication systems failures or service disruptions could reduce the attractiveness of our services and cause our guests to do business with another airline. In addition, we rely on other automated systems for crew scheduling, flight dispatch and other operational needs. Disruptions, failed migration, untimely recovery, or a breach of these systems or our data center could result in the loss of important data, an increase of our expenses, an impact on our operational performance, or a possible temporary cessation of our operations.

Failure to appropriately comply with information security rules and regulations or safeguard our employee or guest data could result in damage to our reputation and cause us to incur substantial legal and regulatory cost.

We accept, store and transmit information about our guests, our employees, our business partners, and our business. Many international and U.S. jurisdictions have established or are in the process of establishing their own data security and privacy regulatory framework with which we, our business partners, and our corporate customers must comply. There are also various bills pending at the U.S. state and federal levels that could impose additional privacy and data security obligations. This uncertain and increasingly complex regulatory environment may result in significant expenses associated with increased investment in technology and the development of new operational processes, particularly as we continue to collect and retain large amounts of personal information. If our online activities or our other customer-facing technology systems do not function as designed, we may experience a loss of customer confidence, decreased sales, or be exposed to fraud, any of which could materially and adversely affect our reputation and operations. In addition, we frequently rely on third-party hosting sites and data processors, including cloud providers. To the extent that either we or third parties with whom we share information are found to be out of compliance with applicable laws and regulations, we could be subject to additional litigation, regulatory risks and reputational harm.

Cyber security threats have and will continue to impact our business. Failure to appropriately mitigate these risks could negatively impact our operations, onboard safety, reputation and financial condition.

Our sensitive information is securely transmitted over public and private networks.  Our systems are subject to increasing and evolving cyber security risks. Unauthorized parties have attempted and continue to attempt to gain access to our systems and information, including through fraudulent misrepresentation and other means of deception. Methods used by unauthorized parties are continually evolving and may be difficult to identify. Because of these ever-evolving risks and regular attacks, we continue to review policies and educate our people on various methods utilized in attempts to gain unauthorized access to bolster awareness and encourage cautionary practices. However, the nature of these attacks means that proper policies and education may not be enough to prevent all unauthorized access. A compromise of our systems, the security of our infrastructure or those of other business partners that result in our information being accessed or stolen by unauthorized persons could adversely affect our operations and our reputation. A cybersecurity attack impacting our onboard or other operational systems may result in an accident or incident onboard or significant operational disruptions, which could adversely affect our reputation, operation and financial position. Further, a significant portion of our office employees have transitioned to remote work, which could increase our potential exposure to cyberattacks, and could compromise our financial or operational systems.

FINANCIAL CONDITION AND FINANCIAL MARKETS

Our business, financial condition and results of operations are substantially exposed to the volatility of jet fuel prices. Significant increases in jet fuel costs would harm our business.

Fuel costs constitute a significant portion of our total operating expenses. Future increases in the price of jet fuel may harm our business, financial condition and results of operations unless we are able to increase fares and fees or add additional ancillary services to attempt to recover increasing fuel costs.

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We have a significant amount of debt and fixed obligations, and have incurred substantial incremental debt in response to the COVID-19 pandemic. These obligations could lead to liquidity restraints and have a material adverse effect on our financial position.

We carry, and will continue to carry for the foreseeable future, a substantial amount of debt and aircraft operating lease commitments. In response to the COVID-19 pandemic, we have incurred and may continue to seek new financing sources to fund our operations while demand remains at an unprecedented low level and for the unknown duration of any economic recovery period. Although we aim to keep our leverage low, due to our high fixed costs, including aircraft lease commitments and debt service, a decrease in revenues would result in a disproportionately greater decrease in earnings.

Our outstanding long-term debt and other fixed obligations could have important consequences. For example, they could limit our ability to obtain additional financing to fund our future capital expenditures, working capital or other purposes; require us to dedicate a material portion of our operating cash flow to fund lease payments and interest payments on indebtedness, thereby reducing funds available for other purposes; or limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions. Further, as we incur incremental obligations, issuers may require future debt agreements to contain more restrictive covenants or require additional collateral beyond historical market terms which may further restrict our ability to successfully access capital.

Although we have historically been able to generate sufficient cash flow from our operations to pay our debt and other fixed obligations when they become due, we cannot ensure we will be able to do so in the future. If we fail to do so, our business could be harmed.

Our maintenance costs will increase as our fleet ages, and we will periodically incur substantial maintenance costs due to the timing of maintenance events of our aircraft.

As of December 31, 2020, the average age of our NextGen aircraft (B737-700, -800, -900, -900ERs) was approximately 9.9 years, the average age of our operating A320 and A321neo aircraft was approximately 7.2 years, the average age of our owned E175 aircraft was approximately 2.6 years, and the average age of our Q400 aircraft was approximately 12.7 years. Typically, our newer aircraft require less maintenance than they will in the future. Any significant increase in maintenance expenses could have a material adverse effect on our results of operations. In addition, expenses for aircraft coming off lease could result in unplanned maintenance expense as we are required to return leased planes in a contractually specified condition.

The application of the acquisition method of accounting resulted in us recording a significant amount of goodwill, which could result in significant future impairment charges and negatively affect our financial results.

In accordance with acquisition accounting rules, we recorded goodwill on our consolidated balance sheet to the extent the Virgin America acquisition purchase price exceeded the net fair value of Virgin America’s tangible and identifiable intangible assets and liabilities as of the acquisition date. Goodwill is not amortized, but is tested for impairment at least annually. We could record impairment charges in our results of operations as a result of, among other items, extreme fuel price volatility, a significant decline in the fair value of certain tangible or intangible assets, unfavorable trends in forecasted results of operations and cash flows, uncertain economic environment and other uncertainties. We can provide no assurance that a significant impairment charge will not occur in one or more future periods. Any such charges may materially affect our financial results.

BRAND AND REPUTATION

As we evolve our brand to appeal to a changing demographic and grow into new markets, we will engage in strategic initiatives that may not be favorably received by all of our guests.

We continue to focus on strategic initiatives designed to increase our brand appeal to a diverse and evolving demographic of airline travelers. These efforts could include significant enhancements to our in-airport and on-board environments, increasing our direct customer relationships through improvements to our purchasing portals (digital and mobile) and optimization of our customer loyalty programs. In pursuit of these efforts we may negatively affect our reputation with some of our existing customer base.

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The Company's brand and reputation could be harmed if it is exposed to significant negative publicity distributed through social media.

We operate in a highly visible industry that has significant exposure to social media. Negative publicity, including as a result of misconduct by our guests or employees, or failure to adhere to COVID-19 related health and safety protocols, can spread rapidly through social media. Should the Company not respond in a timely and appropriate manner to address negative publicity, the Company's brand and reputation may be significantly harmed. Such harm could have a negative impact on our financial results.

LABOR RELATIONS AND LABOR STRATEGY

A significant increase in labor costs, unsuccessful attempts to strengthen our relationships with union employees or loss of key personnel could adversely affect our business and results of operations.

Labor costs remain a significant component of our total expenses. In addition to costs associated with represented employee groups, labor costs could also increase for non-unionized employees and via vendor agreements as we work to compete for highly skilled and qualified employees against the major U.S. airlines and other businesses in a thriving job market. Although ample efforts have been dedicated to right-sizing our management structure following the merger with Virgin America, these increased labor costs may adversely affect our financial performance. 

Should employees engage in job actions, such as slow-downs, sick-outs, or other actions designed to disrupt normal operations and pressure the employer to acquiesce to bargaining demands during Section 6 negotiations, although unlawful until after lengthy mediation attempts, the operation could be significantly impacted. Although we have a long track record of fostering good communications, negotiating approaches and developing other strategies to enhance workforce engagement in our long-term vision, unsuccessful attempts to strengthen relationships with union employees or loss of key personnel could divert management’s attention from other projects and issues, which could adversely affect our business and results of operations.

The inability to attract, retain and train qualified personnel, or maintain our culture, could result in guest impacts and adversely affect our business and results of operations.

We compete against other major U.S. airlines for pilots, aircraft technicians and other skilled labor. As more pilots in the industry approach mandatory retirement age, the U.S. airline industry may be affected by a pilot shortage. Attrition beyond normal levels, the inability to attract new pilots, or our key vendors' inability to attract and retain mechanics or other skilled labor positions could negatively impact our operating results. As a result, our business prospects could be harmed. Additionally, we may be required to increase our wage and benefit packages, or pay increased rates to our vendors, to retain these positions. This would result in increased overall costs and may adversely impact our financial position.

Our success is also dependent on cultivating and maintaining a unified culture with cohesive values and goals. Much of our continued success is tied to our guest loyalty. Failure to maintain and grow the Alaska culture could strain our ability to maintain relationships with guests, suppliers, employees and other constituencies. As part of this process, we may continue to incur substantial costs for employee programs.

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REGULATION

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of our company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, or as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision is intended to apply to claims arising under Delaware state law and would not apply to claims brought pursuant to the Exchange Act or the Securities Act, or any other claim for which the federal courts have exclusive jurisdiction. The exclusive forum provision in our certificate of incorporation will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.

This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. In addition, stockholders who do bring a claim in the Court of Chancery of the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to our company than to our stockholders.

ITEM 1B.     UNRESOLVED STAFF COMMENTS

 None.

ITEM 2.      PROPERTIES

AIRCRAFT

The following table describes the aircraft we operate and their average age at December 31, 2020:

Aircraft Type (a)	Seats	Owned	Leased	Total	Average Age in Years
B737 Freighters	—	3	—	3	19.9
B737 NextGen	124-178	153	10	163	9.9
A320	149	—	21	21	9.3
A321neo	185	—	10	10	2.7
Total Mainline Fleet		156	41	197	9.6
Q400	76	25	7	32	12.7
E175	76	30	32	62	3.3
Total Regional Fleet		55	39	94	6.5
Total		211	80	291	8.6

(a) The table above does not include 10 leased A319, 30 leased A320 and 2 owned Q400 non-operating aircraft.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations" discusses future orders and options for additional aircraft. “Liquidity and Capital Resources" provides more information about aircraft that are used to secure long-term debt arrangements or collateralize credit facilities. Note 7 to the Consolidated Financial Statements provides more information regarding leased aircraft as capitalized on our Consolidated Balance Sheets.

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Alaska’s leased B737 aircraft have lease expiration dates between 2022 and 2028. Alaska’s leased A319 and A320 aircraft have lease expiration dates between 2021 and 2025; and A321neo aircraft have lease expiration dates between 2029 and 2031, including those aircraft that have been permanently removed from our operating fleet, but have not been returned to lessors. Horizon’s leased Q400 aircraft have lease expiration dates between 2022 and 2023. The leased E175 aircraft support our capacity purchase agreement with SkyWest, which extends through 2030. Alaska has the option to extend some of the leases for additional periods.

GROUND FACILITIES AND SERVICES

In various cities in the state of Alaska, we own terminal buildings and two multi-bay hangars. We also own several buildings located at or near Seattle-Tacoma International Airport (Sea-Tac). These include a multi-bay hangar and shops complex (used primarily for line maintenance), a flight operations and training center, an air cargo facility, an information technology office and data center, and various other commercial office buildings. Additionally, in 2020, we opened our newest corporate office building in Sea-Tac, The Hub.

At the majority of the airports we serve, we lease ticket counters, gates, cargo and baggage space, ground equipment, office space and other support areas. Airport leases contain provisions for periodic adjustments of lease rates. We are typically responsible for maintenance, insurance and other facility-related expenses and services under these agreements. We also lease operations, training, administrative, and data center facilities in Burlingame, CA; Portland, OR; Quincy, WA; and Spokane, WA, line maintenance stations in Boise, ID; San Jose, CA; Redmond, OR; Seattle, WA; Kent, WA; and Spokane, WA, and call center facilities in Phoenix, AZ and Boise, ID, and a multi-bay hangar in Portland, OR.

ITEM 3.  LEGAL PROCEEDINGS

The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected. Liabilities for litigation related contingencies are recorded when a loss is determined to be probable and estimable.

In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws. The court certified a class of approximately 1,800 flight attendants in November 2016. The Company believes the claims in this case are without factual and legal merit.

In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as a successor-in-interest to Virgin America, responsible for various damages and penalties sought by the class members. In February 2019, the Court entered final judgment against Virgin America and Alaska Airlines in the amount of approximately $78 million. It did not award injunctive relief against Alaska Airlines. In February 2021, an appellate court reversed portions of the lower court decision and significantly reduced the judgment. The determination of total judgment has not been completed as of the date of this filing. Based on the facts and circumstances available, the Company believes the range of potential loss to be between $0 and $78 million. The Company has recorded an estimate of the loss within this range in the financial statements for the period ending December 31, 2020 as a recognized subsequent event.

The Company is seeking an appellate court ruling that the California laws on which the judgment is based are invalid as applied to national airlines pursuant to the U.S. Constitution and federal law and for other employment law and improper class certification reasons. The Company remains confident that a higher court will respect the federal preemption principles that were enacted to shield inter-state common carriers from a patchwork of state and local wage and hour regulations such as those at issue in this case and agree with the Company's other bases for appeal.

In January 2019, a pilot filed a class action lawsuit seeking to represent all Alaska and Horizon pilots for damages based on alleged violations of the Uniformed Services Employment and Reemployment Rights Act (USERRA). Plaintiff received class certification in August 2020. The case is in discovery. The Company believes the claims in the case are without factual and legal merit and intends to defend the lawsuit.

The Company is involved in other litigation around the application of state and local employment laws, like many air carriers. Our defenses are similar to those identified above, including that the state and local laws are preempted by federal law and are unconstitutional because they impede interstate commerce. None of these additional disputes are material.

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This forward-looking statement is based on management's current understanding of the relevant laws and facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries.

ITEM 4.       MINE SAFETY DISCLOSURES

Not applicable.

PART II

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

As of December 31, 2020, there were 133,567,534 shares of common stock of Alaska Air Group, Inc. issued, 124,217,590 shares outstanding, and 2,437 shareholders of record. In 2020, we paid a quarterly dividend of $0.375 per share in March. As a condition for accepting funds under the Coronavirus Aid Relief and Economic Security (CARES) Act, the Company cannot repurchase common stock or pay dividends until March 31, 2022, or one year after repayment of secured loan proceeds. Our common stock is listed on the New York Stock Exchange (symbol: ALK).

SALES OF NON-REGISTERED SECURITIES

None.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Historically, the Company purchased shares pursuant to a $1 billion repurchase plan authorized by the Board of Directors in August 2015. In March 2020, the Company suspended the share repurchase program indefinitely. The plan has remaining authorization to purchase an additional $456 million in shares.

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PERFORMANCE GRAPH

The following graph compares our cumulative total stockholder return since December 31, 2015 with the S&P 500 Index and the Dow Jones U.S. Airlines Index. The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2015.

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

OVERVIEW

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our company, our operations and our present business environment. MD&A is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report’s introductory cautionary note and the risks mentioned in Part I, “Item 1A. Risk Factors.” This overview summarizes the MD&A, which includes the following sections:

•Year in Review—highlights from 2020 outlining some of the major events that happened during the year and how they affected our financial performance.

•Results of Operations—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the most recent two years presented in our consolidated financial statements. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section also includes forward-looking statements regarding our view of 2021. 

•Liquidity and Capital Resources—an overview of our financial position, analysis of cash flows, sources and uses of cash, contractual obligations and commitments and off-balance sheet arrangements.

•Critical Accounting Estimates—a discussion of our accounting estimates that involve significant judgment and uncertainties.

This section of the Form 10-K covers discussion of 2020 and 2019 results, and comparisons between those years. Discussion of 2018 results and comparisons between 2019 and 2018 have been removed from this Form 10-K, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

YEAR IN REVIEW

COVID-19 impact and response

The public health and economic crises resulting from the outbreak of COVID-19 has had and continues to have an unprecedented impact on our business. The adverse impacts from the crises have been material to our business, operating results, and financial condition. The cancellation of large public events, suspension of business travel, closure of popular tourist destinations and implementation of stay-at-home orders throughout the country that began in March 2020 drove demand for air travel to historic lows. Passenger enplanements were lowest in April 2020, and experienced a slow and volatile recovery pattern through the end of the year.

In response to the crises at hand, we took immediate action to reinforce the health and safety standards for our guests. Through our Next-Level Care initiative, we emphasized nearly 100 measures aimed at creating layers of safety aimed and a safe and healthy environment at all stages of travel.

We also moved quickly to reduce flying and associated costs. Compared to the same quarters in the prior year, our flown capacity was down 75% in Q2, down 55% in Q3 and down 42% in Q4, resulting in full year capacity that was 44% below 2019 levels. By reducing flying, we were able to reduce variable costs, which we supplemented with efforts to minimize discretionary and non-essential spend. Our efforts included officer pay reductions, including 100% pay reductions for both the CEO and Alaska President, suspending or cancellation of pay increases for all employees, reducing management hours and offering voluntary leave programs. We also solicited early-outs and provided incentive leaves for certain workgroups, which reduced our need to furlough employees. In October, we did furlough approximately 400 flight attendants, the majority of whom have returned to work, and reduced management positions by approximately 300. As a result, our non-fuel operating expenses, excluding the Payroll Support Program grant wage offset and special items, declined 22% for the year.

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To further curb cash outflows, we suspended our cash dividend and share repurchase program, and cut capital expenditures to $206 million for the year.

In addition to these efforts, we also sought to fortify our liquidity position. We accessed over $5 billion in new capital, including approximately $1.2 billion raised in the capital markets through the issuance of EETCs, approximately $600 million in bank financing, approximately $280 million from the sale of 10 Airbus aircraft, approximately $1.1 billion received under the CARES Act Payroll Support Program and approximately $1.9 billion made available under the CARES Act Loan Program.

Remarkably, we ended the year with adjusted net debt of $1.7 billion, essentially flat to 2019 levels despite a decline in total operating revenues of $5.2 billion in 2020. We were able to keep this metric flat to prior year as a result of our immediate actions taken to reduce cash spend, through the reduction of operating expenses and discretionary spend. These actions, coupled with $753 million in Payroll Support Program grants enabled us to preserve our balance sheet strength, which was a significant achievement in such a challenging year. This strength positions us well to seize opportunities in the recovery expected ahead.

See “Results of Operations” below for further discussion of changes in revenues and operating expenses and our reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

Recovery and 2021 Outlook

The timing and rate of recovery remains difficult to predict. The slow and, at times, volatile return of demand that we experienced in 2020 is likely to continue into 2021. We are cautiously optimistic that there will be a step change in demand once the vaccine has been broadly distributed, and state and local authorities begin to relax restrictions. Leisure travel has led in the recovery thus far, and we believe it will continue to do so. Business travel has remained more severely depressed, and we believe it will be slower to recover in 2021. This is in part due to the expectation that businesses will be addressing duty of care concerns, plans for reopening corporate offices, and potential resizing corporate travel budgets. Our focus is on preparing our company and operation to rebuild capacity to levels that meet demand as it returns.

We believe low-costs are critical to our success, and returning to pre-pandemic CASMex levels is a priority, even if we remain a smaller business for some time. In the first quarter of 2021, we expect to incur unit costs that are approximately 20% over 2019 levels, and expect sequential improvement in the quarters beyond with a goal of reaching 2019 unit costs as we move into 2022. Although there is still significant work to be done to achieve these goals, we believe that our employees are up to the challenge.

Our outlook, and the guidance provided, will be directly impacted by health trends, the vaccine roll-out, and regulations and restrictions imposed by state, local and federal authorities. Our plans for 2021 will be responsive to emerging information from all of these areas, and the guidance we have provided above is subject to greater uncertainty than we have historically experienced. The work we have done in 2020 to keep our balance sheet strong provides a strong foundation for taking advantage of the recovery ahead, whatever course it may take. Our people are focused on keeping our costs low, running a great operation, and welcoming guests back to travel with Next-Level Care to ensure they are safe and comfortable when they fly. These competitive advantages we have cultivated over many years will continue to serve us well in 2021 and beyond, and we are confident that we are prepared to meet the challenges ahead and that we will emerge from the pandemic a stronger and more resilient airline.

RESULTS OF OPERATIONS

ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS

We believe disclosure of earnings excluding the impact of merger-related costs, mark-to-market gains or losses or other individual special revenues or expenses is useful information to investors because:

•By excluding fuel expense and certain special items (including the payroll support program wage offset, impairment and restructuring charges and merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction initiatives emerging from the COVID-19 pandemic. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the

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impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.

•Cost per ASM (CASM) excluding fuel and certain special items, such as the payroll support program wage offset, impairment and restructuring charges and merger-related costs, is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.

•Adjusted income before income tax and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan, which covers the majority of Air Group employees.

•CASM excluding fuel and certain special items is a measure commonly used by industry analysts and we believe it is an important metric by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors.

•Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of certain items, such as merger-related costs and mark-to-market hedging adjustments, is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.

•Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.

Although we are presenting these non-GAAP amounts for the reasons above, investors and other readers should not necessarily conclude that these amounts are non-recurring, infrequent, or unusual in nature.

2020 COMPARED WITH 2019

Our consolidated net loss for 2020 was $1.3 billion, or $10.72 per diluted share, compared to net income of $769 million, or $6.19 per diluted share, in 2019.

Excluding the impact of the payroll support program grant wage offset, special items and mark-to-market fuel hedge adjustments, our adjusted consolidated net loss for 2020 was $1.3 billion, or $10.17 per diluted share, compared to an adjusted consolidated net income of $798 million, or $6.42 per share, in 2019. The following table reconciles our adjusted net income and earnings per diluted share (EPS) during the full year 2020 and 2019 to amounts as reported in accordance with GAAP.

	Twelve Months Ended December 31,
	2020				2019
(in millions, except per-share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
Reported GAAP net income (loss) and diluted EPS	$	(1,324)	$	(10.72)	$	769	$	6.19
Payroll support program grant wage offset	(782)		(6.33)		—		—
Mark-to-market fuel hedge adjustments	(8)		(0.06)		(6)		(0.05)
Special items - impairment charges and other	627		5.08		—		—
Special items - restructuring charges	220		1.78		—		—
Special items - merger-related costs	6		0.05		44		0.35
Special items - net non-operating	26		0.21		—		—
Income tax effect on special items and fuel hedge adjustments	(21)		(0.18)		(9)		(0.07)
Non-GAAP adjusted net income (loss) and diluted EPS	$	(1,256)	$	(10.17)	$	798	$	6.42

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CASMex is reconciled to CASM below:

	Twelve Months Ended December 31,
	2020		2019		% Change
Consolidated:
Total CASM	14.39	¢	11.58	¢	24%
Less the following components:
Payroll support program grant wage offset	(2.11)		—		NM
Aircraft fuel, including hedging gains and losses	1.95		2.82		(31)%
Special items - impairment charges and other	1.69		—		NM
Special items - restructuring charges	0.59		—		NM
Special items - merger-related costs	0.02		0.06		(67)%
CASM, excluding fuel and special items	12.25	¢	8.70	¢	41%
Mainline:
Total CASM	13.66	¢	10.73	¢	27%
Less the following components:
Payroll support program grant wage offset	(2.17)		—		NM
Aircraft fuel, including hedging gains and losses	1.79		2.65		(32)%
Special items - impairment charges and other	1.80		—		NM
Special items - restructuring charges	0.65		—		NM
Special items - merger-related costs	0.02		0.08		(75)%
CASM, excluding fuel and special items	11.57	¢	8.00	¢	45%

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OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.

Below are operating statistics we use to measure performance.

	Twelve Months Ended December 31,
	2020	2019	Change	2018	Change
Consolidated Operating Statistics:(a)
Revenue passengers (000)	17,927	46,733	(61.6)%	45,802	2.0%
RPMs (000,000) "traffic"	20,493	56,040	(63.4)%	54,673	2.5%
ASMs (000,000) "capacity"	37,114	66,654	(44.3)%	65,335	2.0%
Load factor	55.2%	84.1%	(28.9) pts	83.7%	0.4 pts
Yield	14.73¢	14.45¢	1.9%	13.96¢	3.5%
RASM	9.61¢	13.17¢	(27.0)%	12.65¢	4.2%
CASM excluding fuel and special items(b)	12.25¢	8.70¢	40.8%	8.50¢	2.3%
Economic fuel cost per gallon(b)	$1.58	$2.19	(27.9)%	$2.28	(3.9)%
Fuel gallons (000,000)	461	862	(46.5)%	839	2.7%
ASM's per gallon	80.5	77.3	4.1%	77.9	(0.8)%
Average number of full-time equivalent employees (FTEs)	17,596	22,126	(20.5)%	21,641	2.2%
Employee productivity (PAX/FTEs/months)	84.9	176.0	(51.8)%	176.4	(0.2)%
Mainline Operating Statistics:
Revenue passengers (000)	12,280	35,530	(65.4)%	35,603	(0.2)%
RPMs (000,000) "traffic"	17,438	50,413	(65.4)%	49,781	1.3%
ASMs (000,000) "capacity"	31,387	59,711	(47.4)%	59,187	0.9%
Load factor	55.6%	84.4%	(28.8) pts	84.1%	0.3 pts
Yield	13.48¢	13.39¢	0.7%	13.01¢	2.9%
RASM	9.01¢	12.36¢	(27.1)%	11.93¢	3.6%
CASM excluding fuel and special items(b)	11.57¢	8.00¢	44.6%	7.73¢	3.5%
Economic fuel cost per gallon(b)	$1.59	$2.17	(26.7)%	$2.27	(4.4)%
Fuel gallons (000,000)	358	731	(51.0)%	727	0.6%
ASM's per gallon	87.7	81.7	7.3%	81.4	0.4%
Average number of FTEs	13,214	16,642	(20.6)%	16,353	1.8%
Aircraft utilization	8.3	10.9	(23.9)%	11.2	(2.7)%
Average aircraft stage length	1,272	1,299	(2.1)%	1,298	0.1%
Mainline operating fleet at period-end(d)	197 a/c	237 a/c	(40) a/c	233 a/c	4 a/c
Regional Operating Statistics:(c)
Revenue passengers (000)	5,647	11,203	(49.6)%	10,199	9.8%
RPMs (000,000) "traffic"	3,055	5,627	(45.7)%	4,892	15.0%
ASMs (000,000) "capacity"	5,727	6,943	(17.5)%	6,148	12.9%
Load factor	53.3%	81.0%	(27.7) pts	79.6%	1.4 pts
Yield	21.90¢	23.90¢	(8.4)%	23.66¢	1.0%

(a)Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.

(b)See reconciliation of this non-GAAP measure to the most directly related GAAP measure in the accompanying pages.

(c)Data presented includes information related to flights operated by Horizon and third-party carriers.

(d)Excludes 40 Airbus aircraft permanently parked during 2020.

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OPERATING REVENUES

Total operating revenues decreased $5.2 billion, or 59%, during 2020 compared to the same period in 2019. The changes are summarized in the following table:

	Twelve Months Ended December 31,
(in millions)	2020		2019		% Change
Passenger revenue	$	3,019	$	8,095	(63)	%
Mileage Plan other revenue	374		465		(20)	%
Cargo and other	173		221		(22)	%
Total operating revenues	$	3,566	$	8,781	(59)	%

Passenger Revenue

On a consolidated basis, passenger revenue for 2020 decreased by $5.1 billion, or 63%, on a 44% decrease in capacity, and a 29 point decrease in load factor. Decreased revenue year-over-year is primarily due to the significant loss of demand due to the COVID-19 pandemic. Beginning in March 2020, load factors were severely depressed, and in response we reduced our capacity, which remained well below 2019 levels through the end of 2020. Although we saw modest recovery during summer months and over the holiday periods, primarily led by leisure travelers, resurgence of cases throughout the United States coupled with restrictions imposed by state and local governments stalled further improvements.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue decreased $91 million, or 20%, as compared to 2019, largely due to a reduction in purchased miles and decreased commissions received from our affinity card partner, and an overall reduction in consumer spending.

Cargo and Other Revenue

On a consolidated basis, Cargo and other revenue decreased $48 million, or 22%, from 2019. The decrease is primarily driven by reduced belly cargo activity as a result of schedule reductions for passenger aircraft, as well as capacity limitations on our freighters that resulted from an issue with the barrier walls in the aircraft that was identified in 2020. The barrier walls will eventually be replaced, but the freighters can be operated at reduced capacity until the replacement occurs. These reductions were offset by new cargo routes announced in Alaska, as well as an increase in online shopping activity, leading to increased overall cargo volumes.

We expect that our cargo revenues will increase in 2021 as compared to 2020, as all three freighters return to full capacity and as cargo capacity on passenger aircraft increases.

OPERATING EXPENSES

Total operating expenses decreased $2.4 billion, or 31%, compared to 2019. We consider it useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:

	Twelve Months Ended December 31,
(in millions)	2020		2019		% Change
Fuel expense	$	723	$	1,878	(62)	%
Non-fuel expenses	4,547		5,796		(22)	%
Payroll support program grant wage offset	(782)		—		NM
Special items - merger-related costs	6		44		(86)	%
Special items - impairment charges and other	627		—		NM
Special items - restructuring charges	220		—		NM
Total Operating Expenses	$	5,341	$	7,718	(31)	%

Significant operating expense variances from 2019 are more fully described below.

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Aircraft Fuel

Aircraft fuel expense includes both raw fuel expense (as defined below) and the effect of mark-to-market adjustments to our fuel hedge portfolio included in our consolidated statement of operations as the value of that portfolio increases and decreases. Aircraft fuel expense can be volatile, even between quarters, because it includes these gains or losses in the value of the underlying instrument as crude oil prices and refining margins increase or decrease.

Raw fuel expense is defined as the price that we generally pay at the airport, or the “into-plane” price, including taxes and fees. Raw fuel prices are impacted by world oil prices and refining costs, which can vary by region in the U.S.  Raw fuel expense approximates cash paid to suppliers and does not reflect the effect of our fuel hedges.

Aircraft fuel expense decreased $1.2 billion, or 62%, compared to 2019. The elements of the change are illustrated in the following table: 

	Twelve Months Ended December 31,
	2020				2019
(in millions, except for per gallon amounts)	Dollars		Cost/Gal		Dollars		Cost/Gal
Raw or "into-plane" fuel cost	$	713	$	1.54	$	1,868	$	2.17
(Gain)/loss on settled hedges	18		0.04		16		0.02
Consolidated economic fuel expense	$	731	$	1.58	$	1,884	$	2.19
Mark-to-market fuel hedge adjustments	(8)		(0.01)		(6)		(0.01)
GAAP fuel expense	$	723	$	1.57	$	1,878	$	2.18
Fuel gallons	461				862

Raw fuel expense per gallon decreased 29% due to lower West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil, as well as the refining costs associated with the conversion of crude oil to jet fuel. The decrease in raw fuel price per gallon during 2020 was driven by a 26% decrease in crude oil prices and a 57% decrease in refining margins, as compared to the prior year. Fuel gallons consumed decreased by 401 million, or 47%, consistent with the decrease in capacity of 44%, and a 42% decrease in block hours.

We also evaluate economic fuel expense, which we define as raw fuel expense adjusted for the cash we receive from hedge counterparties for hedges that settle during the period, and for the premium expense that we paid for those contracts. A key difference between aircraft fuel expense and economic fuel expense is the timing of gain or loss recognition on our hedge portfolio. When we refer to economic fuel expense, we include gains and losses only when they are realized for those contracts that were settled during the period based on their original contract terms. We believe this is the best measure of the effect that fuel prices have on our business because it most closely approximates the net cash outflow associated with purchasing fuel for our operations. Accordingly, many industry analysts evaluate our results using this measure, and it is the basis for most internal management reporting and incentive pay plans.

Losses recognized for hedges that settled during the year were $18 million in 2020, compared to losses of $16 million in 2019. These amounts represent cash paid for premium expense, offset by any cash received from those hedges at settlement.

As of the date of this filing, we expect our economic fuel price per gallon to decrease approximately 10% in the first quarter of 2021, as compared to the first quarter of 2020 for similar reasons as noted above. As both oil prices and refining margins are volatile, we are unable to forecast the full-year cost with any certainty.

Wages and Benefits

Wages and benefits decreased during 2020 by $317 million, or 13%, compared to 2019, excluding the impact of the Payroll support program grant wage offset. The primary components of wages and benefits are shown in the following table:

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	Twelve Months Ended December 31,
(in millions)	2020		2019		% Change
Wages	$	1,490	$	1,760	(15)	%
Pension - Defined benefit plans	46		42		10	%
Defined contribution plans	126		132		(5)	%
Medical and other benefits	288		311		(7)	%
Payroll taxes	103		125		(18)	%
Total wages and benefits	$	2,053	$	2,370	(13)	%

Wages and payroll taxes decreased by a combined $292 million on a 21% decrease in FTEs. Decreased wages are primarily due to voluntary leaves of absence taken by thousands of our employees throughout 2020, voluntary early-outs accepted by 600 employees, and a reduction in executive pay and hours for management employees.

Medical and other benefits expense decreased $23 million, or 7%, partially due to an overall reduction in FTEs, coupled with reduced usage of medical benefits as compared to the prior year. Decreases were offset by increased medical rates in 2020.

We expect wages and benefits expense to be higher in 2021 compared to 2020 given our expected growth in overall FTEs needed to support our expected capacity growth. Our guidance does not include the impacts of any future agreements we may reach in 2021, most notably with our mainline pilots whose contract became amendable in April 2020.

Variable Incentive Pay

Variable incentive pay expense decreased to $130 million in 2020 from $163 million in 2019 on a decreased overall wage base coupled with reduced achievement of stated goals as compared to the prior year. The decrease was offset by achievement on a supplemental incentive pay plan approved in 2020, and increased achievement from our quarterly operational bonus program as compared to 2019.

Aircraft Maintenance

Aircraft maintenance costs decreased by $116 million compared to 2019, primarily due to a significant reduction in engine events and heavy checks, as well as reduced power-by-the-hour expense on reduced utilization of covered aircraft. Lower maintenance costs and activity is offset by penalties recorded for failure to meet certain contractual minimum obligations.

We expect aircraft maintenance expense to increase in 2021 as we return temporarily grounded aircraft to flying, which will result in increased heavy maintenance events and additional power-by-the-hour expense on covered aircraft.

Aircraft Rent

Aircraft rent expense decreased $32 million, or 10%, compared to 2019, primarily the result of full impairment taken on certain leased Airbus aircraft. The decrease was partially offset by the full year of expense for two leased A321neos added to the operating fleet in 2019.

We expect aircraft rent to be lower in 2021 given the permanent parking and impairment of 40 leased Airbus aircraft in 2020.

Landing Fees and Other Rentals

Landing fees and other rental expenses decreased $114 million, or 21%, compared to 2019, primarily driven by a 44% decrease in capacity on 38% fewer departures.

We expect landing fees and other rental expense to increase in 2021 as we bring capacity back to our network. We also expect rate increases at many airports we serve, specifically our hubs, as significant capital programs are underway and will be included in our lease rates.

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Selling Expenses

Selling expenses decreased by $212 million, or 68%, compared to 2019 primarily driven by a significant reduction in distribution costs and credit card commissions due to lower sales. Reduced marketing spend and sponsorship costs due to the renegotiation of certain agreements with partners also contributed to the year-over-year decline.

We expect selling expense to increase in 2021, due primarily to higher sales as demand for air travel returns.

Depreciation and Amortization

Depreciation and amortization expenses decreased slightly as compared to 2019 due to the impairment in the first quarter of 2020 of our owned Q400 fleet, as well as the write-off of certain leasehold improvements.

We expect depreciation and amortization expense to increase in 2021, primarily due to depreciation taken on the 737 MAX aircraft scheduled for delivery in 2021.

Third-party Regional Carrier Expense

Third-party regional carrier expense, which represents payments made to SkyWest and PenAir under our CPA agreements, decreased $38 million, or 23%, in 2020 compared to 2019. The decrease is primarily due to a 23% decrease in capacity flown by SkyWest as compared to the prior year and reduced contractual rates incurred for a portion of 2020.

We expect third-party regional carrier expense to be higher in 2021 as regional capacity has largely rebounded to where it was prior to the pandemic.

Special Items - Impairment charges and other

We recorded impairment and other charges of $627 million in 2020. The charges were largely driven by our decision to permanently remove certain leased Airbus aircraft from operating service. For these aircraft, any remaining operating lease assets and related leasehold improvements, spare inventory and parts were expensed. Additionally, for these aircraft we recorded an accrual for total estimated lease return costs. Charges also include the write-down of the ten owned Airbus A320 aircraft and our Q400 fleet to their respective fair value, an accrued loss on a class action lawsuit judgment received subsequent to December 31, 2020, and the full write-off of gate assets at Dallas-Love Field, plus certain other immaterial items.

Special Items - Restructuring charges

We recorded restructuring charges of $220 million in 2020 relating to the reduction of our workforce through voluntary early retirement and temporary leaves, incentive leave programs, involuntary furloughs and reductions in force. Charges are primarily comprised of wages for those pilots and mechanics on incentive leave programs, ongoing medical benefit coverage, and lump-sum termination payments. The total charge for the program was revised in the fourth quarter to capture pilot recalls anticipated in 2021 as a result of increased capacity expectations in our network and a change in the mix of aircraft type. Additional changes to this charge could be necessary in the future if the pilot recall schedule changes again.

Special Items - Merger-Related Costs

We recorded $6 million of merger-related costs in 2020 associated with our ongoing integration of former Virgin America operations compared to $44 million in 2019. Costs incurred in 2020 are primarily comprised of certain technology integration costs. We do not expect to incur integration related charges in 2021.

Consolidated Non-operating Income (Expense)

During 2020, we recorded net non-operating expense, excluding special items, of $39 million, compared to $47 million in 2019. The decrease is primarily due to an increase in income generated by additional cash and marketable securities on hand and reduced expense from our defined-benefit pension plan. Improved non-operating expense was offset by increased interest expense on an increased outstanding debt balance.

We recorded special items in non-operating expense of $26 million in 2020 for pre-payment penalties and swap-break charges related to the early repayment of debt that was previously collateralized by the A320 aircraft which we sold in 2020.

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ADDITIONAL SEGMENT INFORMATION

Refer to Note 14 of the consolidated financial statements for a detailed description of each segment. Below is a summary of each segment's profitability.

Mainline

Mainline pretax loss was $1.4 billion in 2020 compared to pretax income of $993 million in 2019. The $2.4 billion shift to pretax loss was driven by a $4.6 billion decrease in Mainline operating revenue, offset by a $1.1 billion decrease in Mainline non-fuel operating expense and a $1 billion decrease in Mainline fuel expense.

As compared to the prior year, lower Mainline revenues are primarily attributable to a 65% decrease in traffic on a 47% reduction in capacity, driven by the significant reduction in demand as a result of the COVID-19 pandemic. Non-fuel operating expenses declined significantly on cost savings driven by reduced variable costs on lower capacity, as well as decreased wages and benefits expense from voluntary leaves of absence and a reduction in hours for management employees. Lower raw fuel prices, coupled with decreased consumption from the reduction in flying, drove the decrease in Mainline fuel expense.

Regional

Our Regional operations generated a pretax loss of $421 million in 2020 compared to a pretax profit of $2 million in 2019. The shift to pretax loss was primarily attributable to a $660 million decrease in operating revenues, partially offset by a $104 million decrease in non-fuel operating expense and a $133 million decrease in fuel costs. Decreased regional revenues is primarily the result of a 50% decrease in revenue passengers on an 18% decrease in capacity flown, stemming from the impacts of the COVID-19 pandemic.

Horizon

Horizon achieved a pretax profit of $41 million in 2020 compared to $38 million in 2019, primarily as a result of significant cost reduction efforts implemented in response to the COVID-19 pandemic. As Horizon records revenue based on total capacity sold to Alaska under the terms of the CPA, revenue was impacted to a lesser degree by the overall reduction in demand spurred by the pandemic.

LIQUIDITY AND CAPITAL RESOURCES

As a result of the COVID-19 pandemic, we have taken, and will continue to take, action to reduce costs, increase liquidity and preserve the relative strength of our balance sheet. From the onset of the pandemic, we have taken the following key actions to enhance and preserve our liquidity:

•Obtained approximately $1.6 billion in Payroll Support Program funding to use towards payments of wages and benefits, including the extension finalized in January 2021;

•Executed an agreement with the U.S. Department of the Treasury to obtain up to $1.9 billion through the CARES Act loan program. The collateral pool for the agreement includes certain Mileage PlanTM assets and cash flow streams, 34 aircraft and 15 spare engines;

•Obtained $1.2 billion in financing through the issuance of EETC instruments, collateralized by 42 Boeing 737 aircraft and 19 Embraer E175 aircraft;

•Reached an agreement in principle to restructure our aircraft purchase agreement with Boeing, allowing for greater flexibility and lower cash outflows in 2021;

•Drew $400 million from existing credit facilities; and

•Suspended our share repurchase program and quarterly dividend indefinitely.

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Although we have no plans to access equity markets, we believe our equity would be of high interest to investors. The liquidity raised from these financings, coupled with the availability of additional liquidity and our meaningful cost reductions have provided the Company with confidence in our ability to withstand the depressed demand and prepare for recovery. Because of our successful efforts to reduce spending and preserve cash, our adjusted net debt is nearly flat as compared to December 31, 2019.

As the business recovers and eventually returns to profitability, reducing outstanding debt and strengthening our balance sheet will be a high priority. Based on our expectations about the recovery ahead, we expect to incur cash flow from operations of $100 million to zero in the first quarter including funds received as part of the CARES Act Payroll Support Program. For the first half of the year we expect cash flows from operations to be positive.

We believe that our current cash and marketable securities balance, combined with available sources of liquidity, will be sufficient to fund our operations and meet our debt payment obligations, and to remain in compliance with the financial debt covenants in existing financing arrangements for the foreseeable future.

In our cash and marketable securities portfolio, we invest only in securities that meet our primary investment strategy of maintaining and securing investment principal. The portfolio is managed by reputable firms that adhere to our investment policy that sets forth investment objectives, approved and prohibited investments, and duration and credit quality guidelines. Our policy, and the portfolio managers, are continually reviewed to ensure that the investments are aligned with our strategy.

The table below presents the major indicators of financial condition and liquidity: