Alaska Airlines and Horizon Air 2010 Annual Report Download

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 ANNUAL REPORT
HIGHEST IN CUSTOMER SATISFACTION • BEST ONTIME PERFORMANCE
TOP PERFORMING AIRLINE • AIRLINE TECHNOLOGY LEADERSHIP AWARD
BEST LOYALTY CREDIT CARD • MAINTENANCE TRAINING EXCELLENCE

Table of contents

  • Page 1
    2 0 1 0 A N N U A L R E P O R T HIGHEST IN CUSTOMER SATISFACTION • BEST ON2TIME PERFORMANCE TOP PERFORMING AIRLINE • AIRLINE TECHNOLOGY LEADERSHIP AWARD BEST LOYALTY CREDIT CARD • MAINTENANCE TRAINING EXCELLENCE

  • Page 2

  • Page 3
    For the third year in a row, Alaska Airlines was ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" by J.D. Power and Associates We ranked.... "HIGHEST IN CUSTOMER SATISFACTION AMONG TRADITIONAL CARRIERS IN NORTH AMERICA, THREE YEARS IN A ROW" 2010 Annual Report Page 1

  • Page 4
    In 2010 Alaska Airlines was named Adjusted pre-tax margin - 2010 15% 10% 5% 0% r rG ou p So w uth est ite d De lta Bl ue US ay s A ri me ca n "Top-Performing Airline of the Year" by Aviation Week Magazine The magazine highlighted our smaller size and independence as one of our biggest assets. -5%...

  • Page 5
    Alaska Airlines was awarded the "On-Time Performance Service Award" among major North American airlines by FlightStats.com for our 2010 on... 2009 2010 Flights arriving within 15 minutes of scheduled arrival Rankings in 2008-2010 are among the 10 largest domestic airlines 2010 Annual Report Page 3

  • Page 6
    In January 2011, Air Transport World named Alaska Airlines the winner of the "2011 Airline Technology Leadership Award," citing our pioneering of RNP (Required Navigation Performance) technology in the 1990s, our "Airport of the Future," and the "Greener Skies Over ...

  • Page 7
    Our Mileage Plan program was recognized as having the "Best Loyalty Credit Card" in North America at the Frequent Traveler Awards in 2010. The Mileage Plan program is no stranger to awards - it won the Freddie Award for "Program of the Year" five times in seven years. 2010 Annual Report Page 5

  • Page 8
    Alaska Airlines received a ninth and Horizon Air received an eleventh consecutive Diamond Award for maintenance training excellence through the Federal Aviation Administration's William ...the daily investment we make in the training and technical excellence of our technicians. page 6 Alaska Air Group

  • Page 9
    ... 2005, respectively. See reconciliation of GAAP to adjusted amounts on pages 28 and 40 of Alaska Air Group's 2010 Annual Report on Form 10-K. Å Percent of seats filled Both Alaska and Horizon reported record passenger load factors. As a result of our ability to quickly shift capacity to markets...

  • Page 10
    .... The magazine highlighted our smaller size and independence as one of our biggest assets. Alaska was awarded the "On-Time Performance Service Award" among major North American airlines by FlightStats.com for our 2010 on-time performance. In January 2011, Air Transport World named Alaska the winner...

  • Page 11
    ...in 2010 - which equates to more than one month's pay for every employee. Fourth - fleet. In 2008, we achieved our goal of a single fleet of efficient Boeing 737 aircraft at Alaska. And this year, Horizon will complete its transition to a single fleet of all Q400 aircraft in June. Fifth - growth. Air...

  • Page 12
    ...airline in 2010. However, we know we're not done. Customers want low fares, and to have low fares, we must have low costs. Alaska Airlines...major changes at Horizon. First, our transition to an all-Q400 fleet is becoming a ... Horizon brand in our home region - the Pacific Northwest - and our employees'...

  • Page 13
    ...by working together with our people, we have an advantage over airlines that used bankruptcy to solve their problems and we're better ... service and low fares for our customers; Secure careers for our employees who share in the company's success through generous ... Officer Alaska Air Group April 4, 2011

  • Page 14
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  • Page 15
    Notice of Annual Meeting of Shareholders and Proxy Statement Å Proxy

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  • Page 17
    ...Box 68947 Seattle, Washington 98168 To our Stockholders: The Annual Meeting of Stockholders of Alaska Air Group, Inc. (the "Annual Meeting") will be held at the Museum of Flight ... may access, view and download the 2011 proxy statement and 2010 Annual Report over the internet at www.edocumentview.com/alk Å ...

  • Page 18

  • Page 19
    ... YEAR-END ...2010 OPTION EXERCISES AND STOCK VESTED ...2010 PENSION BENEFITS ...2010 NONQUALIFIED DEFERRED COMPENSATION ...POTENTIAL PAYMENTS UPON CHANGE IN CONTROL AND TERMINATION ...REDUCE DUPLICATIVE MAILINGS ...SUBMISSION OF PROPOSALS FOR NEXT ANNUAL MEETING ...EXHIBIT A-ALASKA AIR GROUP, INC...

  • Page 20

  • Page 21
    ...2010 is included in the 2010 Annual Report. It was filed with the Securities and Exchange Commission ("SEC") on February 23, 2011. Internet Availability of Annual Meeting Materials Under SEC rules, Alaska Air...download this proxy statement and our 2010 Annual Report... shares. Employees of the Company who ...

  • Page 22
    ... trustee confers all of its rights as a record holder to grant proxies or to vote at the meeting. Listed below are the various means - internet, phone and mail - you can use to vote your shares without attending the...

  • Page 23
    .... By using the internet or telephone to vote, you help Alaska Air Group conserve natural resources and reduce postage and proxy tabulation costs....a vote of stockholders at the annual meeting is considered non-routine under applicable 3 You can vote by phone. Stockholders of record and beneficial...

  • Page 24
    ... items at the annual meeting. If your... November 30, 2010 and complied with...one account for your Alaska Air Group shares. Please... complete and submit all proxies to ensure that all your shares are voted or vote by internet or telephone using each of the identification numbers...

  • Page 25
    ...you can obtain a new proxy card by contacting the Company's Corporate Secretary, Alaska Air Group, Inc., P.O. Box 68947, Seattle, WA 98168, telephone (206)... May 12, 2011. Because the shares must be voted by the trustee, employees who hold shares through the 401(k) plans may not vote these shares at ...

  • Page 26
    ... enroll for electronic proxy delivery. At this time, employee participants in a Company 401(k) plan may not elect...2010) require that each director be elected annually by a majority of votes cast with respect to that director. This means that the number of votes "for" a director must exceed the number...

  • Page 27
    ...present and entitled to vote and are included for purposes of determining the number of shares constituting a majority of shares present and entitled to vote. ... affirmative vote of a majority of the shares represented at the Annual Meeting, either in person or by proxy, and entitled to vote...

  • Page 28
    ...included for purposes of determining the number of shares present and entitled ...of our officers, directors and employees. Is a list of stockholders ...any legally valid purpose related to the Annual Meeting. Where can I find the...You can read or print a copy of that report by going to the Company's website - www...

  • Page 29
    ...Alaska Air Group as well as chair of Alaska Airlines and Horizon Air since May 2003. He has been CEO of Alaska Airlines since 2002, and served as president of Alaska Airlines...CPA) during her 27-year career with Andersen. She currently serves on the Alaska Airlines Board, the Overlake Hospital Medical...

  • Page 30
    ... October 2010. Mr. Ayer, Alaska Air Group President and CEO, recommended Ms. Blakey for consideration by the Governance and Nominating Committee. The Governance and Nominating Committee recommended that the Board of Directors appoint Ms. Blakey a director and nominee for election at the 2011 Annual...

  • Page 31
    ... In 2010, Mr. Madsen was appointed a director of West Marine Inc., a publicly traded retail company in the recreational boating sector. He also serves on West Marine's governance and compensation committees. Other boards on which Mr. Madsen is a member include Alaska Airlines, Horizon Air, Pivotlink...

  • Page 32
    .../regulatory experience specially qualifies him for his Alaska Air Group Board service. Bradley D. Tilden Director since 2010 Age - 50 Mr. Tilden was appointed to the Alaska Air Group Board in December 2010. He has served as president of Alaska Airlines since December 2008. He served as executive...

  • Page 33
    ...Analysis section of this proxy statement describes the Company's executive compensation programs and the decisions made by the Compensation Committee in 2010 in more detail. Highlights of these executive compensation programs include the following: • Base Salary In general, for the Named Executive...

  • Page 34
    ...) and the related rules of the SEC, our Board of Directors will request your advisory vote on the following resolution at the 2011 Annual Meeting: RESOLVED, that the compensation paid to the named executive officers, as disclosed in this proxy statement pursuant to the SEC's executive compensation...

  • Page 35
    ...cast an advisory vote on how often the Company should include an advisory vote on executive compensation in its proxy materials for future annual stockholder meetings (or special stockholder meeting for which the Company must include executive compensation information in the proxy statement for that...

  • Page 36
    ...RIGHT OF STOCKHOLDERS TO ACT BY WRITTEN CONSENT Background At the Company's 2010 annual meeting, Alaska Air Group stockholders holding a majority of our outstanding shares of common stock approved...- the action is effective as soon as consents representing the requisite number of shares are received -

  • Page 37
    ... the outstanding shares. These actions include: • In April 2010, prior to our 2010 annual meeting of stockholders and in response to a prior stockholder ...Pursuant to this unfettered right, there are no restrictions on the number of stockholders that are permitted to group together to reach the ten...

  • Page 38
    ..., it is approved by the Company's stockholders within one year of adoption. • At the Company's 2009 and 2010 annual meetings of stockholders, the Board voluntarily sought an annual advisory vote from stockholders on the executive compensation paid to its named executive officers. In this proxy...

  • Page 39
    ...Annual Meeting, stockholders will be asked to approve the following amendments to the Alaska Air...terminated, after May 20, 2008 without being exercised or paid are also available for award grant purposes under the 2008 Plan. The proposed amendments would also increase the limit on the number...employees...

  • Page 40
    ...by writing to the Stock Plan Administrator, Alaska Air Group, Inc., P.O. Box 68947, ... authority to grant awards to employees may be delegated to one or...to receive; • to determine the number of shares that are to be ...or modify, discontinue, suspend, or terminate any or all outstanding awards, subject...

  • Page 41
    ...Persons eligible to receive awards under the 2008 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company... prior to the termination of the authority to grant new awards under that plan as of May 20, 2008, plus (3) the number of any shares subject...

  • Page 42
    ...shares are delivered in respect of a dividend equivalent right, only the actual number of shares delivered with 22 respect to the award shall be counted against...to or underlie awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are ...

  • Page 43
    ... more restrictive terms and are limited in amount by the U.S. Internal Revenue Code and the 2008 Plan. Incentive stock options may only be granted to employees of the Company or a subsidiary. A stock appreciation right is the right to receive payment of an amount equal to the excess of the fair...

  • Page 44
    ... of interest or other earnings on the deferred amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in shares. Assumption and Termination of Awards. Generally, and subject to limited exceptions set forth in the 2008 Plan, if the Company dissolves...

  • Page 45
    ...is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the 2008 Plan and any outstanding awards...with respect thereto, generally will continue following the expiration or termination of the plan. Generally speaking, outstanding awards may be ...

  • Page 46
    ...based awards granted to the Company's named executive officers during fiscal 2010, see the material in this proxy statement under the heading "... granted under the 2008 Plan. (This number of shares includes shares subject to awards that expired or terminated without having been exercised and paid and...

  • Page 47
    ...more of the options, warrants or rights under the 2008 Plan All employees, including all current officers who are not executive officers or directors, ... at the 2011 annual meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AMENDED ALASKA AIR GROUP 2008 PERFORMANCE INCENTIVE...

  • Page 48
    ...the 2008 Plan, the 2004 Plan, the 2010 Employee Stock Purchase Plan (the "ESPP") and... under the 2008 Plan. (3) Of the aggregate number of shares that remained available for future issuance,...-Officer Long-Term Incentive Equity Plan The 1997 Plan terminated on November 3, 2002 and no further awards may ...

  • Page 49
    ... Board. 6. Evaluate the nature, structure and composition of other Board committees. 7. Take steps it deems necessary or appropriate with respect to annual assessments of the performance of the Board and each Board committee, including itself. 29 Governance and Nominating Committee Pursuant to its...

  • Page 50
    ...changes in the internal audit charter. 30 • Review major financial reporting risk exposure and adequacy and effectiveness of associated internal controls. ...fraud that involves management or other employees with significant roles in internal controls. 5. Annually review and reassess the adequacy of...

  • Page 51
    ... elected executive officers of Alaska Airlines and Horizon Air. 4. Set annual goals under the PerformanceBased Pay...Horizon Air Profit Sharing Administrative Committee, and approve the membership of those committees, trustees and trust agreements, and the extension of plan participation to employees...

  • Page 52
    .... The standing Board committees held the following number of meetings in 2010: • Audit Committee - 8 • Compensation Committee... by the Company to the University of Alaska where former director Mr. Mark Hamilton was...'s and the charitable organizations' annual revenues. Each member of the...employee of

  • Page 53
    ...Committee solicits ideas for possible candidates from a number of sources including, but not limited to...director nor any immediate family member was an employee or partner of the independent accountants firm within...annual revenues. For the purposes of these standards, "Company" includes all Alaska Air...

  • Page 54
    ... on 90th day, and no earlier than the close of business on the 120 day, prior to the first anniversary of the prior year's annual meeting. The written notice submitted by a stockholder must also satisfy the additional informational requirements set forth in Article II, Section 9 of the Bylaws. See...

  • Page 55
    ... percentage of shares through the date of the annual meeting with respect to which the candidate is nominated...residence address, principal occupation or employment, number of shares of the Company's stock ... to the following address: Board of Directors Alaska Air Group, Inc. PO Box 68947 Seattle, WA...

  • Page 56
    ...understanding of the Company's business, and other factors deemed relevant to Alaska Air Group Board service. Diversity is considered broadly, not merely with regard ...at the Governance and Nominating Committee. In addition, on an annual basis, as part of the Board's selfevaluation, the Board assesses...

  • Page 57
    ... the Program. Under the Program, an Alaska Air Group Risk Matrix has been developed and ... the Audit Committee receives quarterly written reports regarding the Program and an annual in-person review of the Program... the highly technical nature of the airline business and the importance of having deep...

  • Page 58
    ...discussed with executive management during an annual executive officer planning session, in the...nature of the airline business. Executive Sessions and Lead Director The Air Group Board holds ...employee directors) or with the non-employee directors as a group, may write to: Board of Directors Alaska Air...

  • Page 59
    ... an annual retainer of $1,000 to non-employee directors who also served on the Boards of Directors of Alaska Airlines or Horizon Air; •...2010 Annual Report filed on Form 10-K with the SEC and incorporated herein by reference. The non-employee directors do not hold any outstanding options. Alaska Air...

  • Page 60
    ... benefit encourages Non-Employee Directors to travel, thus enhancing their connection to the Alaska Airlines and Horizon Air products and services....32,946 26,835 (4) Ms. Blakey was appointed to the Board in October 2010. The cash retainer paid and value of deferred stock units granted to Ms. Blakey...

  • Page 61
    ... information as requested for the review. Once initially approved or ratified, all transactions with related persons will be reviewed at least annually. The policy does not require review or approval of the following transactions: (i) employment by the Company of an executive officer unless...

  • Page 62
    ... SEC regulations also require the Company to identify in this proxy statement any person subject to this requirement who failed to file a report on a timely basis. A Form 4 due May 14, 2010 for Mr. Keith Loveless, relating to a same-day exercise and sale of stock options, was instead filed on May 17...

  • Page 63
    ... Services, and in 2008, (iii) agreed-upon procedures regarding Air Group's employee incentive pay plans. Audit Fees for the Company's Annual Financial Statements and Quarterly Reviews(1) Audit-Related Fees(2) Tax Fees(3) All Other Fees(4) Total Fees for 2010 2009 $1,011,950 142,216 17,366 25,000...

  • Page 64
    ...the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Alaska Air Group's Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Audit Committee of the Board of Directors Patricia M. Bedient, Chair Marion C. Blakey, Member Mark...

  • Page 65
    ...rules of the SEC and represents the sum of the columns "Number of Shares of Common Stock Owned" and "Options Exercisable within 60... are described in the "2010 Grants of Plan Based Awards" table on page 60. Total shares beneficially owned reported for non-employee directors also include common shares...

  • Page 66
    ... Owner Number of... PRIMECAP reported in ...Horizon Air Industries (who served as Alaska Air Group CFO for part of 2010); Benito Minicucci, COO of Alaska Airlines; Jeffrey D. Pinneo, former CEO of Horizon Air Industries (who held this position for part of 2010); and Brandon S. Pedersen, CFO of Alaska Air...

  • Page 67
    ...objectives of the executive compensation programs, as determined by the Alaska Air Group Board Compensation Committee, are as follows: • to ... the Company's strategic plan; • to align the interests of executives, employees, and stockholders by tying a large portion of our executives' total direct...

  • Page 68
    ...paid out on a short-term or current basis. Annual incentives and longterm equity-based incentives are intended to ...place a substantial emphasis on pay that is variable and tied to performance objectives. For 2010, the Committee approved target-level compensation for Mr. Ayer that is 80% variable and...

  • Page 69
    ...2010, the Committee reviewed the total direct compensation for executives with a peer group of air carriers consisting of Air Tran Holdings, AMR Corporation, Continental Airlines, Delta Air...-Based Pay" annual incentive plan. The... mindful of the ratio of CEO to employee pay and, as a result, is ...

  • Page 70
    ...below depicts CEO base salaries at airline peer group companies. CEO Base Pay Comparisons (Airlines) 2010 Base Salary Alaska Air Group, Inc. Base Salary (Air Group peers)* AMR Corporation Delta Airlines, Inc. JetBlue Airways Corporation Southwest Airlines Corporation UAL Corporation US Airways Group...

  • Page 71
    ...Alaska Horizon Target Alaska Horizon Maximum Alaska Horizon Operational Performance Safety • Lost-time injuries per 100 full-time employees (5%) • Aircraft ground damage (5%) Employee Engagement/ Customer Satisfaction • Measured by the number...350 million Annual target ...2010 Alaska Air...

  • Page 72
    ...under any Alaska Air Group (... or other fleet exit costs,...Alaska Airlines executive whose target participation is 75% of base salary. 2010 Performance-Based Pay Calculation* Metrics Actual % of Target Achieved Weight Payout % Safety - Lost-time injuries Safety - Aircraft ground damage Employee...

  • Page 73
    ...Performance-Based Pay 200% 166% 149.7% 149.6% Alaska average - 104% 182.7% 188.2% 184.7% 150% Horizon average - 107% 106% 108% 100% 61%..., and the maximum annual payout for each employee is $1,200. Officers... stock options only to the degree that Air Group stockholders would realize value if they ...

  • Page 74
    ...2010: AirTran Holdings, AMR, Continental Airlines, Delta Air Lines, ExpressJet Holdings, JetBlue Airways, Hawaiian Holdings, Mesa Air Group, Republic Airways Holdings, SkyWest, Southwest Airlines, United Airlines and US Airways Group. (The Committee will adjust the peer group annually...target number ...

  • Page 75
    ... Benefits Beginning in 2008, an annual amount equal to 12% of base salary is paid to each Named Executive Officer in lieu of all perquisites except for travel, life insurance, health exams, accidental death and dismemberment insurance and Alaska Airlines Boardroom membership. In addition, the...

  • Page 76
    ... Officers participate in on substantially the same terms as other participating employees. Due to maximum limitations imposed by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code on the annual amount of a pension which may be paid under a qualified defined benefit...

  • Page 77
    ...Compensation Committee is currently composed of the three non-employee directors named at the end of this report, each of whom is independent as defined by ... Compensation Discussion and Analysis section be included in the Company's 2010 Annual Report on Form 10-K on file with the SEC and the Company...

  • Page 78
    ...Alaska Airlines) Benito Minicucci(6) Executive Vice President/ Operations and COO (Alaska Airlines) Jeffrey D. Pinneo(7) Former President and CEO (Horizon Air) 2010 370,961 2009 353,074 2008 278,538 2010 280,961 2009 259,610 2010... as part of the Company's 2010 Annual Report filed on Form 10-K with ...

  • Page 79
    ...Retirement Plan for Salaried Employees and the Officers Supplementary ...the defined-benefit plan are reported in Column (i) and detailed... Alaska Airlines Board Room membership; annual ...Horizon Air Industries, Inc. in June 2010. Previously he was Executive Vice President/ Finance and CFO of Alaska Air...

  • Page 80
    ... as President and CEO of Horizon Air until June 2010, and retired from Horizon Air in January 2011. (8) Mr. Pedersen was elected Chief Financial Officer of Alaska Air Group, Inc. and Alaska Airlines, Inc. in June 2010 and was not a Named Executive Officer prior to 2010. As such, only Mr. Pedersen...

  • Page 81
    ...2010 Annual Report filed on Form 10-K with the SEC and incorporated herein by reference. (2) The Committee granted a special performance stock unit award to Mr. Johnson upon his election to president of Horizon Air... ($)(1) (h) Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other...

  • Page 82
    ...shown in Column (h) and Column (j) are determined by multiplying the number of shares or units reported in Column (g) and Column (i), respectively, by $56.69 (...the closing price of our common stock on the last trading day of fiscal 2010...

  • Page 83
    (13) The performance stock units reported in Column (i) are eligible to vest based on the Company's ...by Named Executive Officers during 2010 and on the vesting during 2010 of other stock awards previously granted to the Named Executive Officers. Option Awards Number of Shares Acquired on Value...

  • Page 84
    ...Alaska Air Group, Inc. Retirement Plan for Salaried Employees (the "Salaried Retirement Plan") is the qualified defined-benefit employee.... Number of Years Credit Service...Employee Benefits Plans) to the Company's Consolidated Financial Statements, included as part of the Company's 2010 Annual Report...

  • Page 85
    ...-benefit retirement plan for salaried Alaska Airlines employees hired prior to April 1,...the employee's final average base salary times years of credited service (limited to 40 years). Annual benefits...a change of control of the Company or upon termination of the participant's employment due to death or...

  • Page 86
    ...employees may elect to receive a portion of some or all of their Performance-Based Pay awards on a deferred basis. There were no deferrals in 2010. The crediting... amounts deferred under the plan are generally distributed on termination of the participant's employment, although participants may elect ...

  • Page 87
    ...annual incentive payments for the three years preceding the year in which the change in control occurs; • continue to accrue age and service credit...terminated. The outstanding equity awards held by the executives as of December 31, 2010... air travel on Alaska Airlines and Horizon Air having an approximate ...

  • Page 88
    ...if his employment had terminated due to retirement, death or disability, or change in control on December 31, 2010. As described above..., the actuarial equivalent of an additional three years of age and service credit under our qualified and non-qualified retirement plan using the executive's highest ...

  • Page 89
    ...termination and payments, methodology for valuing stock options, changes in compensation, and reasonable compensation analyses. REDUCE DUPLICATIVE MAILINGS The Company is required to provide an annual report... you may notify us at the address and phone number at the end of the following paragraph if ...

  • Page 90
    ... The Company expects to hold its next annual meeting on or about May 15, 2012. If you wish to submit a proposal for inclusion in ...notice. If you would like a copy of the procedures contained in our Bylaws, please contact: Corporate Secretary Alaska Air Group, Inc. P.O. Box 68947 Seattle, WA 98168 70

  • Page 91
    ...Alaska Air Group, Inc., a Delaware corporation (the "Company"), is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees... directors or such number of directors as ...

  • Page 92
    ...a committee consisting solely of two or more non-employee directors (as this requirement is applied under Rule 16b... securities will be offered or awarded and the number of securities to be offered or awarded to ... targets, and establish the events of termination or reversion of such awards; (c) approve...

  • Page 93
    ...) subject to any required consent under Section 8.6.5; (g) adjust the number of shares of Common Stock subject to any award, adjust the ..., adjustments are required pursuant to Section 7 hereof and authorize the termination, conversion, substitution or succession of awards upon the occurrence of an...

  • Page 94
    ...Administrator may obtain and may rely upon the advice of experts, including employees and professional advisors to the Company. No director, officer or agent of...to the termination of the authority to grant new awards under the 2004 Plan as of the Stockholder Approval Date, plus (3) the number of any...

  • Page 95
    ...granted under this Plan which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are ... in respect of a dividend equivalent right granted under this Plan, the number of shares delivered with respect to the award shall be counted against the...

  • Page 96
    ... a limit (of not greater than 100 shares) on the minimum number of shares that may be purchased or exercised as to awards granted under this ...alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Company or one of its Subsidiaries. The types ...

  • Page 97
    ... pursuant to the exercise of an ISO. ISOs may only be granted to employees of the Company or one of its subsidiaries (for this purpose, the term... Common Stock, equal to the excess of the fair market value of a specified number of shares of Common Stock on the date the SAR is exercised over the "base...

  • Page 98
    ...-based vesting requirements will be subject to termination and forfeiture to the same extent as ... options and SARs granted to officers and employees ("Qualifying Options" and "Qualifying SARS," respectively...accepted accounting principles or in the financial reporting of the Company or of its ...

  • Page 99
    ...shall be subject to the limit set forth in Section 4.2(b). The maximum number of shares of Common Stock which may be delivered pursuant to Performance-Based...the Code (other than Qualifying Options and Qualifying SARs) shall terminate upon the first meeting of the Company's stockholders that occurs in...

  • Page 100
    ... the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of dividend equivalents where... of previously owned shares of Common Stock; • by a reduction in the number of shares otherwise deliverable pursuant to the award; or • subject to such ...

  • Page 101
    ... Common Stock on the Exchange for the next preceding day on which sales of Common Stock were reported on the Exchange. The Administrator may, however, provide with respect to one or more awards that... Company (for example, in connection with the expiration or termination of the award), A-11 Å Proxy

  • Page 102
    ... based upon, inter alia, the cause of termination and type of award. If the participant is not an employee of the Company or one of its Subsidiaries ...for a period of not more than three months. In the case of any employee of the Company or one of its Subsidiaries on an approved leave of absence...

  • Page 103
    ...Stock; then the Administrator shall equitably and proportionately adjust (1) the number and type of shares of Common Stock (or other securities) ...conclusive and binding on all persons. 7.2 Corporate Transactions-Assumption and Termination of Awards. Upon the occurrence of any of the following: any...

  • Page 104
    ... a public company in respect of its Common Stock); then the Administrator may make provision for a cash payment in settlement of, or for the termination, assumption, substitution or exchange of any or all outstanding share-based awards or the cash, securities or property deliverable to the holder of...

  • Page 105
    7.3 Other Acceleration Rules. The Administrator may override the provisions of Section 7.2 by express provision in the award agreement and may accord any Eligible Person a right to refuse any acceleration, whether pursuant to the award agreement or otherwise, in such circumstances as the ...

  • Page 106
    ...'s status as an employee at will, nor shall interfere in any way with the right of the Company or one of its Subsidiaries to change a person's compensation or other benefits, or to terminate his or her employment or other service, with or without cause. Nothing in this Section 8.3, however, is...

  • Page 107
    ... on exercise, vesting or payment. In no event shall the shares withheld exceed the minimum whole number of shares required for tax withholding under applicable law. 8.6 Effective Date, Termination and Suspension, Amendments. 8.6.1 Effective Date. This Plan is effective as of March 13, 2008, the date...

  • Page 108
    ...an award is subject to the limitations set forth in Section 3.2. 8.6.5 Limitations on Amendments to Plan and Awards. No amendment, suspension or termination of this Plan or amendment of any outstanding award agreement shall, without written consent of the participant, affect in any manner materially...

  • Page 109
    ...Eligible Persons in substitution for or in connection with an assumption of employee stock options, SARs, restricted stock or other stock-based awards ...shall not be counted against the Share Limit or other limits on the number of shares available for issuance under this Plan. 8.11 Non-Exclusivity ...

  • Page 110
    ... shall have any claim under any award or award agreement against any member of the Board or the Administrator, or the Company or any employees, officers or agents of the Company or any Subsidiary, as a result of any such action. 8.13 Other Company Benefit and Compensation Programs. Payments and...

  • Page 111
    Annual Report on Form 10-K Å Form 10-K

  • Page 112

  • Page 113
    ...2010 OR ' TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File Number 1-8957 ALASKAA AIR...of common stock of Alaska Air Group, Inc. held by nonaffiliates on June 30, 2010, was approximately $1.6 ...

  • Page 114
    ... AIR GROUP, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2010 TABLE OF CONTENTS PART I ...ITEM I. OUR BUSINESS ...WHERE YOU CAN FIND MORE INFORMATION ...OUR AIRLINES ...ALASKA ...HORIZON ...INDUSTRY CONDITIONS ...FUEL ...MARKETING AND COMPETITION ...ALLIANCES WITH OTHER AIRLINES...

  • Page 115
    ... in this Form 10-K, the terms "Air Group," "our," "we" and the "Company" refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our...

  • Page 116
    ... 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...

  • Page 117
    ... of air travelers. For example, Alaska has ranked "Highest in Customer Satisfaction among Traditional Network Carriers" in 2010, 2009 and 2008 by J.D. Power and Associates, was named "Top-Performing Airline" in 2010 by Aviation Week Magazine, was recognized for having the "Best Loyalty Credit Card...

  • Page 118
    ...and Portland-San Francisco. At December 31, 2010, Horizon's operating fleet consisted of 13 jets and 41 turboprop aircraft. Horizon flights are listed under Alaska's designator code in airline reservation systems. Alaska and Horizon integrate their flight schedules to provide convenient, competitive...

  • Page 119
    ...annually. Said another way, a one-cent change in our fuel price per gallon will impact our expected annual...airlines at a slight competitive disadvantage. Historically, fuel costs have generally represented 10% to 15% of an airline...fuel cost per gallon increased 27% in 2010, declined 43% in 2009, and ...

  • Page 120
    ... as of December 31, 2010 are as follows: Codeshare- Alaska Flight # on Flights Operated by Other Airline Codeshare- Other Airline Flight # On Flights Operated by Alaska/ Horizon Frequent Flyer Agreement Major U.S. or International Airlines American Airlines/ American Eagle ...Air France ...British...

  • Page 121
    ... 43% of our total non-fuel operating expenses in both 2010 and 2009. At December 31, 2010, labor unions represented 82% of Alaska's and 47% of Horizon's employees. Our relations with our 9 TICKET DISTRIBUTION Airline tickets are distributed through three primary channels: • Alaskaair.com: It...

  • Page 122
    ...help. Alaska's union contracts at December 31, 2010 were as follows: Number of Active Employees Union Employee Group Contract Status Air Line...2011 In Negotiations Horizon's union contracts at December 31, 2010 were as follows: Number of Active Employees Union Employee Group Contract Status ...

  • Page 123
    ... from November 1997 to December 2008. He has served as Horizon Air Industries' Chairman and Chief Executive Officer since June 2010. Prior to that, he was Sr. Vice President/Customer Service, Marketing and Planning of Alaska Airlines from January 1997, and Vice President/Marketing and Planning from...

  • Page 124
    ... President/Finance and Chief Financial Officer of Alaska Air Group and Alaska Airlines in December 2008. He was elected President of Horizon Air Industries in June 2010. He is a member of Air Group's Management Executive Committee. Mr. Minicucci joined Alaska Airlines in 2004 as Staff Vice President...

  • Page 125
    ...2010, 2009 and 2008. The Department of Justice and DOT have jurisdiction over airline... adopted environmental and employee safety and health laws...Alaska and Horizon have transitioned or are transitioning to more fuelefficient aircraft fleets...countries we serve. Although air carriers are required to file...

  • Page 126
    ...credits, and award levels or to terminate the program. Mileage can be redeemed for free or discounted travel and for various other awards. Mileage Plan accounts are generally deleted after two years of inactivity in a member's account. Over 88% of the free flight awards on Alaska and Horizon in 2010...

  • Page 127
    ...be more susceptible to adverse weather conditions (particularly in the state of Alaska and the Pacific ITEM 1A. RISK FACTORS If any of the ...significant loss of life and result in a loss of confidence in our airlines by the flying public. We could experience significant potential claims from injured ...

  • Page 128
    ..., taxes, and airport rates and charges have been proposed from time to time 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...

  • Page 129
    ... 2010,...airline. Vendor bankruptcies, unionization...Alaska has subcontracted its heavy aircraft maintenance, fleet...Alaska and Horizon are parties to marketing agreements with a number of domestic and international air carriers, or "partners," including, but not limited to, American Airlines and Delta Air...

  • Page 130
    ...total operating expenses for the years ended December 31, 2010 and 2009, respectively. Significant increases in average fuel ... could be harmed. Alaska is required to comply with specific financial covenants in certain agreements. We cannot be certain that Alaska will be able to...air travel. If a 18

  • Page 131
    ...should the government stop providing such coverage to the airline industry, the premiums charged by aviation insurers for ...maintenance systems, our kiosk check-in terminals, and other systems. Substantially all of... information over public networks, including credit card information. A compromise of ...

  • Page 132
    ... 31% and 34% of our total operating expenses in 2010 and 2009, respectively. As of December 31, 2010, labor unions represented approximately 82% of Alaska's and 47% of Horizon's employees. Each of our represented employee groups has a separate collective bargaining agreement, and could make...

  • Page 133
    ... table displays the currently anticipated fleet counts for Alaska and Horizon as of the end of each quarter in 2011: 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11 Alaska Airlines 737-400 ...737-400C* . . 737-400F* . . 737-700 ...737-800 ...737-900 ...Totals ...Horizon Air Q400 ...CRJ-700 ...Totals ...46...

  • Page 134
    ... in Phoenix, AZ. and Boise, ID. Alaska uses its own employees for ground handling services at most of our airports in the state of Alaska. At other airports throughout our system, those services are contracted to various thirdparty vendors. Horizon owns its Seattle corporate headquarters building...

  • Page 135
    ...symbol: ALK). The following table shows the trading range of Alaska Air Group, Inc. common stock on the New York Stock Exchange. 2010 High Low 2009 High Low PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Total Number of Shares (or units) Purchased as Part of Average Publicly...

  • Page 136
    ... 12/05 12/06 12/07 12/08 12/09 12/10 Alaska Air Group, Inc. S&P 500 Dow Jones US Airlines *$100 invested on 12/31/05 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved...

  • Page 137
    ... DATA 2010 2009 ... 1.92 (0.10) 1.83 0.40 1.72 STATISTICS (unaudited) Alaska Airlines Mainline Operating Data: Revenue passengers (000) ...16,514 15,561...number of full-time equivalent employees ...8,651 8,915 9,628 9,679 9,322 9,065 Operating fleet at period-end ...114 115 110 115 114 110 Horizon Air...

  • Page 138
    ... number of full-time equivalent employees ...3,423 3,361 3,476 3,764 3,795 Operating fleet at period-end ...65 62 63 60 62 (c) Includes Horizon services operated as Frontier JetExpress in 2004 through 2007 and flights operated under the Capacity Purchase Agreement with Alaska in 2007 through 2010...

  • Page 139
    ...report...magazine, and recognized for having the "Best Loyalty Credit Card" in North America in 2010 at the Frequent Travel Awards. Alaska Airlines announced an agreement to purchase 15 new Boeing 737 aircraft, including 13 B737-900ER aircraft, for deliver in 2012 through 2014. In addition, Horizon Air...

  • Page 140
    ... Labor Negotiations Both Alaska and Horizon have had success recently with amended bargaining agreements or contract extensions with a number of labor unions. All of the new agreements or extensions ratified in 2010 include participation by the represented employees in Air Group's Performance-Based...

  • Page 141
    ... reliable operations at our airlines. In addition to our...number of network changes over the last few years, have diversified our network and made us less dependent on our historical markets in the State of Alaska...per share) in 2009. 2010 included Horizon restructuring and fleet transition costs of $13...

  • Page 142
    ...and Horizon reported pretax income of $401.6 million and $7.6 million, respectively, in 2010. Financial and statistical data and an in-depth discussion of the results of Alaska and Horizon are on the following pages. For a reconciliation of these subsidiary results to the consolidated results of Air...

  • Page 143
    ALASKA AIRLINES FINANCIAL AND STATISTICAL DATA Three Months Ended December 31 2010 2009 % Change 2010 Year Ended December 31 2009 % Change ... ...Average number of full-time equivalent employees ...Aircraft utilization (blk hrs/day) ...Average aircraft stage length (miles) ...Operating fleet at period-...

  • Page 144
    ALASKA AIRLINES Alaska reported record pretax income of $401.6 million in 2010 compared to pretax income of $183.8 million in 2009. Excluding certain items as noted in the table below, Alaska would have reported record pretax income of $404.9 million in 2010...growth in the number of passengers. ...

  • Page 145
    ... wages and benefits to be higher in 2011 as compared to 2010 because of an increase in the number of FTEs as we bring back furloughed employees to handle the expected growth in 2011. In addition, we expect increases related to annual wages and the cost of healthcare. Mainline fuel expense ...$ 760...

  • Page 146
    ...this measure, and it is the basis for most internal management reporting and incentive pay plans. Our economic fuel expense is calculated ... net benefit recognized for hedges that settled during the period was $2.8 million in 2010, compared to a net expense of $50.4 million in 2009. These amounts ...

  • Page 147
    ...15.7%, from 2009 due to an increased number of passengers, the higher cost of ...in 2010. We expect aircraft rent to be lower in 2011 as we annualize lease returns from 2010. We...a new four-year contract, Alaska's pilots received a one-time... as a result of higher credit card and travel agency commissions ...

  • Page 148
    ...annual cost performance. For Alaska, these decision-makers evaluate operating results of the "mainline" operation, which includes the operation of the B737 fleet branded in Alaska Airlines... 6% and 3% respectively, compared to 2010. The expected decline in unit cost ...was paid to Horizon under the ...

  • Page 149
    ... per gallon ...Economic fuel cost per gallon ...Fuel gallons (000,000) ...Average number of full-time equivalent employees ...Aircraft utilization (blk hrs/day) ...Average aircraft stage length (miles) ...Operating fleet at period-end ...NM = Not Meaningful 194.1 (4.6) 5.6 157.1 236.0 58.2 56.9 57...

  • Page 150
    HORIZON AIR Horizon reported pretax income of $7.6 million in 2010 compared to pretax income of $22.8 million in 2009. The decline in earnings is primarily due to higher aircraft fuel expense and higher restructuring and fleet... on behalf of Alaska totaled $274.4 million during 2010 compared to $261...

  • Page 151
    ... $2.9 million of restructuring charges associated with the voluntary separation of a number of employees resulting from the decision to outsource the remaining aircraft heavy maintenance function to a third party. In 2009, fleet transition costs associated with the removal of Q200 aircraft from the...

  • Page 152
    ...-700 fleets. 2008 included realized losses on the early termination of fuel-hedge contracts originally scheduled to settle in 2009 and 2010 of ...22 per share) related to the reduction in work force at Alaska. 4.34¢ 0.41¢ 15.52¢ - 3.31¢ - 15... as employee per-diem costs and stock-based compensation expense...

  • Page 153
    ...Plan terms ...New pilot contract transition costs ...Restructuring charges ...Fleet transition costs- MD-80 ...Mark-to-market fuel hedge... table: (in millions) Years Ended December 31 % 2009 2008 Change ALASKA AIRLINES Alaska reported income before income taxes of $183.8 million in 2009 compared to a...

  • Page 154
    ...credit card partner under the affinity card agreement and an increase in the number... of miles needed to redeem a travel award. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported... ALASKA ... fuel and fleet transition charges...

  • Page 155
    ... also be attributed to the addition of Alaska's pilots, flight attendants and mechanics to the... engines, partially offset by the benefits of our fleet transition, as we have replaced all of our aging... as a result of the reduction in the number of flights operated throughout our system to ports ...

  • Page 156
    ... Alaska's...Fleet Transition Costs In the third quarter of 2008, we announced work force reductions among union and non-union employees. The affected non-union employees were terminated...Horizon under the CPA for 1.4 billion ASMs. This expense is eliminated in consolidation. HORIZON AIR Horizon reported...

  • Page 157
    ... restructuring ...Income (loss) before income taxes as reported ... $ 7.7 - 15.1 - $22.8 $(10.4) (13.5) (23.4) (8.5) $(55.8) Passenger revenue from Horizon "brand" flying . . $381.9 Revenue from capacity purchase arrangements (CPA) with Alaska ...261.7 Total passenger revenue and % of ASMs...

  • Page 158
    ...in 2009 and 2008, respectively. Variable pay increased for the same performance reasons cited in the Alaska discussion and the addition of Horizon's flight attendants and non-represented employees into Air Group's PBP plan. (in millions, except per-gallon amounts) Raw fuel expense ...$113.9 Plus or...

  • Page 159
    ...700 aircraft, and a $1.3 million severance charge associated with the fleet reduction. CONSOLIDATED INCOME TAX EXPENSE (BENEFIT) Our consolidated effective income... is primarily the magnitude of nondeductible expenses, such as employee per-diem costs and stock-based compensation expense recorded for...

  • Page 160
    ...flown on one of our airlines, and as other-net revenue for awards issued and flown on partner airlines. At December 31, 2010, we had approximately 117...balances have not yet reached the minimum mileage credit level to redeem an award. Our estimates of the number of miles that will not be redeemed (...

  • Page 161
    ... travel partners. We estimate the number of awards that will be redeemed on our airlines versus on our travel partners and...on an accrual basis over employees' approximate service periods and... pension plan assets decreases. As of December 31, 2010, we estimate that the pension plan assets will generate...

  • Page 162
    ...associated with frequent flyer credits. Management does not ... has issued a number of proposed Accounting ...Proposed ASU-Leases-was issued in August 2010. This proposed standard overhauls accounting for ...Horizon announced plans to ultimately exit its CRJ-700 fleet and transition to an all-Q400 fleet...

  • Page 163
    ...to be approximately $1.0 billion using a seven times annual rent factor. These proposed ASUs are currently in... dates assigned to these proposals. In July 2010, the FASB also issued an initial draft ...operating fleet that could be financed, if necessary; Our combined $200 million bank line-of-credit ...

  • Page 164
    ...-capital assuming aircraft operating leases are capitalized at seven times annualized rent ...December 31, December 31, 2010 2009 Change $ 1,208.2 32% 1,313.0 1,105.4...related ...Non-aircraft ...Total Air Group ... $330 55 $385 Cash Provided by Operating Activities During 2010, net cash provided by ...

  • Page 165
    ... $1,150.9 million, as set forth below. Alaska has options to acquire 42 additional B737s and Horizon has options to acquire 10 Q400s. Pre-delivery Payment Facility We terminated our pre-delivery payment facility in the second quarter of 2010. There were no outstanding borrowings under this facility...

  • Page 166
    ...longer in our operating fleets. We have accrued ...2010, we capitalized $34 million associated with this project, which represents total project costs to date. Credit Card Agreements We have agreements with a number of credit...from Terminal 3 to Terminal 6 at Los Angeles International Airport (LAX). As...

  • Page 167
    ...and commodityprice risk in jet fuel required to operate our aircraft fleet. We purchase the majority of our jet fuel at prevailing ... not have any collateral held by counterparties to these agreements as of December 31, 2010. We continue to believe that our fuel hedge program is an important part of ...

  • Page 168
    ...-rate debt agreements over the past several years. Our variable-rate debt is approximately 20% of our total long-term debt at December 31, 2010 compared to 22% at December 31, 2009. We also have investments in marketable securities, which are exposed to market risk associated with changes in...

  • Page 169
    ... audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Alaska Air Group, Inc.'s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control- Integrated Framework issued by the Committee of...

  • Page 170
    ALASKA AIR GROUP, INC. CONSOLIDATED BALANCE SHEETS As of December 31 (in millions) 2010 2009 ASSETS Current Assets Cash and cash equivalents ...Marketable securities ...Total cash and marketable securities ...Receivables-less allowance for doubtful accounts of $0.9 and $1.5 ...Inventories and ...

  • Page 171
    ALASKA AIR GROUP, INC. CONSOLIDATED BALANCE SHEETS-(continued) As of December 31 (in millions except share amounts) 2010 2009...Air traffic liability ...422.4 Current portion of long-term debt ...221.2 Total Current Liabilities ...Long-Term Debt, Net of Current Portion ...Other Liabilities and Credits...

  • Page 172
    ALASKA AIR GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 (in millions except per share amounts) 2010 2009 2008 Operating Revenues Passenger...Horizon restructuring and CRJ-700 fleet transition costs ...Fleet transition costs-MD-80 ...Fleet transition costs-CRJ-700 ...Fleet...

  • Page 173
    ALASKA AIR GROUP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (in millions) Common... ...Treasury stock issued under stock plans ...Delisting of treasury shares ...Stock issued for employee stock purchase plan ...Stock issued under stock plans, including $0.3 million tax benefit ...Balances...

  • Page 174
    ALASKA AIR GROUP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY-(continued) Common Shares Outstanding Common Stock Capital in Excess of Par Value Treasury Stock, at Cost Accumulated Other Comprehensive Loss Retained Earnings (In millions) Total Balances at December 31, 2009 ...2010 net ...

  • Page 175
    ALASKA AIR GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 (in millions) 2010 2009 2008 Cash flows from operating activities:... and other current assets ...(9.7) (10.3) (8.6) Increase (decrease) in air traffic liability ...56.1 (6.4) 8.2 Increase (decrease) in other current ...

  • Page 176
    ... 31, 2010 NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation The consolidated financial statements include the accounts of Alaska Air Group, Inc. (Air Group or the Company) and its subsidiaries, Alaska Airlines, Inc. (Alaska) and Horizon Air...

  • Page 177
    ... of $20.2 million and $14.0 million at December 31, 2010 and 2009, respectively. Repairable and rotable aircraft parts inventories are included......As a result of the planned early retirement of the CRJ-700 fleet, all remaining flight equipment is depreciated down to their expected salvage values....

  • Page 178
    ... claims and employee health care ...2010 and December 31, 2009, respectively. Revenue Recognition Passenger revenue is recognized when the passenger travels. Tickets sold but not yet used are reported as air...agreements with other airlines, certain amounts are...airport and terminal facilities, office...

  • Page 179
    ... redeemed and flown on Alaska or Horizon, and as other-net revenue for awards redeemed and flown on other airlines (less the cost paid to the other airline). The portion of the sales proceeds not deferred is recognized as commission income in the period that the mileage credits are sold and included...

  • Page 180
    ...employees as well as the Company's Employee Stock Purchase Plan (ESPP), which features a look-back provision and allows employees...liability approach for accounting and reporting income taxes. Deferred tax assets..., and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities...

  • Page 181
    ..., on an interim basis, disclosures that were previously only required in annual statements for the fair value of financial instruments. This new standard was... in active markets. Amounts measured at fair value as of December 31, 2010 are as follows (in millions): Level 1 Level 2 Level 3 Total Level...

  • Page 182
    ...at fair value, with the unrealized gains and losses reported in shareholders' equity under the caption "accumulated other ... thereafter. Some of the Company's asset-backed securities held at December 31, 2010 had credit losses, as defined in the accounting standards. Based on a future cash flow...

  • Page 183
    ...): Carrying Amount Long-term debt at December 31, 2010 ...$1,534.2 Long-term debt at December 31, 2009 ...$1,855.2 Fair Value $1,531.0 $1,821.3 Concentrations of Credit The Company continually monitors its positions with, and the credit quality of, the financial institutions that are counterparties...

  • Page 184
    ... do not represent a significant concentration of credit risk at December 31, 2010 due to the frequency that settlement takes place...50 million on fuel hedge contracts terminated in the fourth quarter of 2008 that had scheduled settlement dates in 2009 and 2010. These amounts represent the difference ...

  • Page 185
    ... positions were as follows (in millions): December 31, December 31, 2010 2009 Crude oil call options or "caps" ...Refining margin swap contracts ...Total ...$129.3 2.0 $131.3 $115.9 1.1 $117.0 reset dates, termination dates and underlying notional values. The agreements expire from September 2020...

  • Page 186
    ....0 1,855.2 (156.0) $1,699.2 Bank Line of Credit The Company has two $100 million credit facilities. Both facilities have variable interest rates based on ...sheet. Pre-delivery Payment Facility Effective March 31, 2010, the Company terminated its variable-rate pre-delivery payment facility that had...

  • Page 187
    ...fleet) and subleased to third party carriers. The majority of airport and terminal facilities are also leased. Total rent expense was $294.5 million, $303.1 million, and $313.5 million, in 2010... employee groups of Alaska and Horizon. The defined-benefit plans provide benefits based on an employee's...

  • Page 188
    ... periodic benefit cost for the years ended December 31: Discount rates of 5.85%, 6.20%, and 6.00% were used for the years ended December 31, 2010, 2009, and 2008, respectively. For all three years, the expected return on plan assets used was 7.75%, and the rate of compensation increase used varied...

  • Page 189
    ...follows (dollars in millions): 2010 2009 Level Nonqualified Defined-Benefit Pension Plan Alaska also maintains an unfunded, ...2010 and 2009. Fund type: Money market fund . . $ 27.7 U.S. equity market fund ...561.9 Non-U.S. equity fund ...210.0 U.S. debt index fund ...135.0 Government/credit...

  • Page 190
    ...Alaska's pilots. The accumulated benefit obligation for the combined qualified defined-benefit pension plans was $1,232.1 million and $1,102.5 million at December 31, 2010...INCOME OR LOSS (AOCI): Qualified 2010 Nonqualified Qualified 2009 Nonqualified Prior service cost (credit) ...$ (16.7) Net loss ...

  • Page 191
    ... vision benefits by paying all or a portion of the active employee plan premium until eligible for Medicare, currently age 65. This results...plan amendment and the transfer to the pilot long-term disability plan in 2010 were the result of plan changes in the new pilot collective bargaining agreement ...

  • Page 192
    ... in 2010, 2009, and 2008, respectively. The increase in 2010 is due to pilots that elected to freeze or reduce their service credits in ... 56.1 Pilot Long-term Disability Benefits The collective bargaining agreement with Alaska's pilots calls for the removal of long-term disability benefits from the...

  • Page 193
    ... entitles all Air Group employees to quarterly payouts of up to $300 per person if certain operational and customer service objectives are met. NOTE 7. RESTRUCTURING AND FLEET TRANSITION Horizon Restructuring and Fleet Transition Horizon Restructuring Charges During the third quarter of 2010, the...

  • Page 194
    ...Related Costs 2009 2008 Alaska Transition to All-Boeing 737 Fleet In March 2006,... lease arrangements have been terminated and the Company no ..., 2009, Alaska announced that its pilots, represented by the Air Line Pilots Association... been combined and reported as "New pilot... 2010 2009 Airline traffic...

  • Page 195
    ...2010 2009 At December 31, 2010, the Company's restricted deposits were primarily restricted investments used to guarantee various letters of credit...2009, the Company announced plans to move from Terminal 3 to Terminal 6 at Los Angeles International Airport (LAX). As part of this move, the Company ...

  • Page 196
    ... or the period between grant date and the date the employee becomes retirement-eligible as defined in the applicable plan. All...issued from the Company's treasury shares. The total number of outstanding options from the 1997 Plan as of December 31, 2010 is 8,500. Substantially all grantees are 25% ...

  • Page 197
    ...the employee's retirement eligibility. The Company recorded stock-based compensation expense related to RSUs of $6.2 million, $5.8 million, and $6.8 million in 2010, 2009...tied to the Company's total shareholder return relative to an airline peer group, and based on certain 85 Restricted Stock Awards...

  • Page 198
    ...to PSUs in 2010. No compensation expense was recorded in 2009 and a $0.4 million credit was recorded in 2008. Deferred Stock Awards In 2010, the Company ...discontinued in February 2010 and a new Employee Stock Purchase Plan was approved by the shareholders at the Company's 2010 annual Stock options ...

  • Page 199
    ...liabilities for financial reporting purposes and such...and other tax credits ...Inventory obsolescence ...Deferred gains ...Employee benefits ...Loss ... as of December 31, 2010. This conclusion is based...federal tax return and its state tax returns in Alaska, Oregon, and California as "major" tax ...

  • Page 200
    ...2010 ...$ 1.5 NOTE 12. OPERATING SEGMENT INFORMATION Accounting standards require that a public company report annual and interim financial and descriptive information about its reportable...two primary operating and reporting segments, consisting of Alaska and Horizon, for which financial information...

  • Page 201
    ... Includes the parent company, Alaska Air Group, Inc., including its investments in Alaska and Horizon, which are eliminated in ...treasury. This action did not impact the total number of common shares outstanding. 89 Å Form 10-K In June 2010, the Board of Directors authorized the Company to ...

  • Page 202
    ...of diluted EPS because they were antidilutive. As the Company reported a net loss in 2008, no outstanding stock options ...Alaska had violated the CBA and instructed Alaska and the IAM to negotiate a remedy. In February 2010, the arbitrator issued a final decision. The decision does not require Alaska...

  • Page 203
    ... Treadway Commission (the COSO Framework). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2010. We intend to regularly review and evaluate the design and effectiveness of our disclosure controls and procedures and...

  • Page 204
    ... INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Alaska Air Group, Inc.: We have audited Alaska Air Group, Inc.'s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by...

  • Page 205
    ITEM 9B. OTHER INFORMATION None 93 Å Form 10-K

  • Page 206
    ... herein by reference from the definitive Proxy Statement for Air Group's 2011 Annual Meeting of Stockholders to be filed with the Securities ...and Exchange Commission within 120 days after the end of the fiscal year ended December 31, 2010...

  • Page 207
    ... 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this report: 1. Qualifying Accounts, for the years ended December 31, 2010, 2009 and 2008. 2. Financial Statement Schedules: Financial Statement Schedule II, Valuation and Exhibits: See Exhibit...

  • Page 208
    ... 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALASKA AIR GROUP, INC. By: /S/ WILLIAM S. AYER Date: February 23, 2011 William S. Ayer, Chairman and Chief Executive Officer...

  • Page 209
    ...are numbered ...Report on Form 10-Q for the period ended March 31, 2010, filed on August 11, 2010 and incorporated herein by reference.) Credit Agreement, dated March 31, 2010, among Alaska Airlines...Horizon Air Industries, Inc. and Bombardier Inc. (Filed as Exhibit 10.1 to Registrant's Quarterly Report...

  • Page 210
    ... on Form 8-K, filed on February 5, 2010 and incorporated herein by reference.) Alaska Air Group, Inc. 2004 Long-Term Incentive Plan and original form of stock option and restricted stock unit agreements (Filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December...

  • Page 211
    ..., filed on August 15, 1997 and incorporated herein by reference.) Alaska Airlines, Inc. and Alaska Air Group, Inc. Supplementary Retirement Plan for Elected Officers, as amended November 7, 1994 (Filed as Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997...

  • Page 212
    31.2†32.1†32.2††* # Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of Chief...

  • Page 213
    Schedule II ALASKA AIR GROUP, INC. VALUATION AND QUALIFYING ACCOUNTS (in millions) Beginning Balance ... accounts ...Obsolescence allowance for flight equipment spare parts ...Year Ended December 31, 2010 Reserve deducted from asset to which it applies: Allowance for doubtful accounts ...Obsolescence...

  • Page 214
    ... reviewed this annual report on Form 10-K of Alaska Air Group, Inc. for the period ended December 31, 2010; Based on my knowledge, this report does not contain... management or other employees who have a significant role in the registrant's internal control over financial reporting. By /s/ WILLIAM...

  • Page 215
    ... reviewed this annual report on Form 10-K of Alaska Air Group, Inc. for the period ended December 31, 2010; Based on my knowledge, this report does not contain... management or other employees who have a significant role in the registrant's internal control over financial reporting. By /s/ BRANDON...

  • Page 216
    ...18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Alaska Air Group, Inc. (the "Company") on Form 10-K for the period ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the...

  • Page 217
    ...18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Alaska Air Group, Inc. (the "Company") on Form 10-K for the period ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the...

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    ..., President & CEO Alaska Air Group Alaska Air Group Officers William S. Ayer Chairman, President & CEO Alaska Airlines Officers William S. Ayer... Treasurer Joseph A. Sprague Marketing Edward W. White Corporate Real Estate Horizon Air Officers William S. Ayer Chairman & CEO Glenn S. Johnson President ...

  • Page 220
    ...1981, is similarly noted for outstanding customer service. Horizon Air is a regional carrier and, beginning in 2011, performs all of its flying for Alaska Airlines under a capacity purchase arrangement. Horizon serves nearly seven million passengers annually. Its hubs are Seattle, Portland and Boise...

  • Page 221
    ...-year history of Major League Soccer. Supporting the Timbers is the perfect fit for Alaska Airlines and the 2,300 Alaska Airlines and Horizon Air employees who call the greater Portland area home. Alaska Airlines won the naming rights for the University of Washington Husky basketball arena. We are...

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