ALASKA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and basis of presentation

The unaudited condensed consolidated financial statements include the accounts of Alaska Air Group (Air Group, or "the Company"), and its primary subsidiaries, Alaska Airlines, Inc. (Alaska), Horizon Air Industries, Inc. (Horizon), and, beginning September 18, 2024, Hawaiian Holdings, Inc. (Hawaiian). The unaudited condensed consolidated financial statements also include McGee Air Services (McGee), a ground services subsidiary of Alaska, and other immaterial business units. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. It should be read in conjunction with the consolidated financial statements and accompanying notes in the Form 10-K for the year ended December 31, 2024. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of September 30, 2025 and the results of operations for the three and nine months ended September 30, 2025 and 2024. Such adjustments were of a normal recurring nature. Certain rows, columns, figures, or percentages may not recalculate due to rounding.

In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenue and expenses, including impairment charges. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment, and other factors, operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of operating results for the entire year.

Tax legislation

In July 2025, the One Big Beautiful Bill Act was signed into law. The legislation modifies certain business tax provisions, including changes made to bonus depreciation, amortization of research and experimental expenditures under Section 174, and business interest expense limitation under Section 163(j). The Company does not expect the legislation to have a material impact on our income tax expense for 2025.

NOTE 2. ACQUISITION OF HAWAIIAN HOLDINGS, INC.

On September 18, 2024, the Company completed its acquisition of Hawaiian Holdings, Inc. The Company paid shareholders $18.00 per share, or approximately $936 million in cash for 52 million outstanding voting shares of Hawaiian. An additional $41 million was paid in cash for change in control payments and settlement of accelerated and vested awards, resulting in total consideration of $977 million. The combination brings together two complementary networks and expands consumer choice across Hawai'i, the West Coast, and international destinations. Along with enhanced network utility, the combined carriers' diversified product offerings and focus on high quality service and operational performance enhance Air Group's competitive position.

Fair values of the assets acquired and the liabilities assumed

The transaction has been accounted for as a business combination using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. The fair values of the assets acquired and liabilities assumed were determined using a market basis, relief from royalty, or multi-period excess earnings approach. There were no material fair value adjustments made in the three and nine months ended September 30, 2025.

Fair values of the assets acquired and the liabilities assumed as of the acquisition date, September 18, 2024, and finalized as of September 30, 2025, are as follows:

Merger-related costs

The Company incurred pretax merger-related costs of $61 million and $90 million for the three months ended September 30, 2025 and 2024, respectively, and $154 million and $128 million, for the nine months ended September 30, 2025 and 2024, respectively. These costs are presented within Special items - operating within the unaudited condensed consolidated statements of operations. Refer to Note 12 for further information on special items. The Company expects to incur additional merger-related costs in 2025.

Pro forma impact of the acquisition

The unaudited pro forma financial information presented in the table below represents a summary of the consolidated results of operations for the Company and Hawaiian as if the acquisition of Hawaiian had been consummated as of January 1, 2023. The pro forma results do not include any anticipated synergies, or other expected benefits of the acquisition. Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2023.

The pro forma information includes adjustments for merger-related costs of $381 million assumed to have been incurred on January 1, 2023.

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents the primary source of the Company's revenue. Also included in Passenger revenue is passenger ancillary revenue such as bag fees, on-board food and beverage, and certain revenue from the Atmos™ Rewards loyalty program. Atmos Rewards was launched in the third quarter of 2025 by combining Alaska's Mileage Plan™ and Hawaiian's HawaiianMiles™ programs. Loyalty program other revenue includes brand and marketing revenue from the Atmos Rewards co-branded credit cards and other partners, and certain interline loyalty program revenue, net of commissions. Cargo and other revenue consists of freight and mail revenue, services provided to Amazon under the Air Transportation Services Agreement (ATSA), and other ancillary revenue products such as lounge membership and certain commissions.

The level of detail within the Company’s unaudited condensed consolidated statements of operations and in this note depict the nature, amount, timing, and uncertainty of revenue and how cash flows are affected by economic and other factors.

Certain prior period amounts in this note have been revised by an immaterial amount to reflect the appropriate classification of receivables.

Passenger Revenue

Passenger revenue recognized in the unaudited condensed consolidated statements of operations:

Domestic passenger revenue includes operations in the U.S., including between the Hawaiian Islands (the Neighbor Island routes), and Canada. Latin America passenger revenue includes operations in Mexico, Costa Rica, Guatemala, Belize, and Bahamas. Pacific passenger revenue includes operations in the South Pacific, Australia, New Zealand, and Asia.

The table below presents the Company's passenger revenue by principal geographic region (as defined by the U.S. Department of Transportation):

Loyalty Program Revenue

Loyalty program revenue included in the unaudited condensed consolidated statements of operations:

Cargo and Other Revenue

Cargo and other revenue included in the unaudited condensed consolidated statements of operations:

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $72 million and $46 million from the prior year-end air traffic liability balance for the three months ended September 30, 2025 and 2024, and $1.2 billion and $763 million from the prior year-end traffic liability balance for the nine months ended September 30, 2025 and 2024.

Loyalty program assets and liabilities

The Company records a receivable for amounts due from affinity card partners and from other partners as loyalty points are sold until the payments are collected. The Company had $177 million of such receivables as of September 30, 2025 and $176 million as of December 31, 2024.

The table below presents a roll forward of the total loyalty program liability:

NOTE 4. FAIR VALUE MEASUREMENTS

In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used.

Level 1 refers to fair values based on quoted prices for identical instruments in active markets.

Level 2 refers to fair values estimated using significant other observable inputs such as similar instruments in active markets or quoted prices for identical or similar instrument in markets that are not active. Fair values for Level 2 instruments are determined using standard valuation models that incorporate inputs such as quoted prices for similar assets, interest rates, benchmark curves, credit ratings, and other observable inputs or market data.

Level 3 refers to fair values estimated using significant unobservable inputs for which there is little or no market data and that are significant to the fair value of the assets. Fair values for Level 3 instruments are determined using future cash flows and discount rates, which include information obtained from third-party valuation sources and other market sources, including recent offers from potential buyers.

Fair value of financial instruments measured on a recurring basis

As of September 30, 2025, cost basis and fair value for marketable securities were $1.5 billion. Differences in cost basis and fair value of marketable securities are primarily a result of changes in interest rates and general market conditions. The Company does not believe any unrealized losses are the result of credit quality based on its evaluation of industry and duration exposure, credit ratings of the securities, liquidity profiles, and other observable information as of September 30, 2025.

Fair values of financial instruments on the unaudited condensed consolidated balance sheets:

The fair value of interest rate swaps was not material as of September 30, 2025 and December 31, 2024.

Activity and maturities for marketable securities

Maturities for marketable securities:

Fair value of other financial instruments

The Company uses the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.

Debt: The estimated fair value of fixed-rate Enhanced Equipment Trust Certificate (EETC) debt and certain variable rate debt is Level 2, while the estimated fair value of $723 million of certain variable-rate and fixed-rate debt, including Payroll Support Program (PSP) notes payable and Japanese Yen denominated debt, is classified as Level 3.

Fixed-rate debt on the unaudited condensed consolidated balance sheets and the estimated fair value of long-term fixed-rate debt:

Assets and liabilities measured at fair value on a nonrecurring basis

Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating and finance lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. No material impairments were recorded during the three and nine months ended September 30, 2025.

NOTE 5. DEBT

Debt obligations on the unaudited condensed consolidated balance sheets:

Approximately $521 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at September 30, 2025, resulting in an effective weighted-average interest rate for the full debt portfolio of 4.7%.

During the nine months ended September 30, 2025, the Company incurred debt of $452 million from multiple lenders and sources. New debt includes proceeds of $383 million, secured by aircraft. Additionally, $69 million was incurred as part of an agreement to finance certain E175 deliveries. Debt from the E175 financing is reflected as a non-cash transaction within the supplemental disclosures in the unaudited condensed consolidated statements of cash flows. During the nine months ended September 30, 2025, the Company made debt payments of $389 million.

In the third quarter, the Company, through a wholly-owned subsidiary, amended its variable rate term loan facility, secured by assets associated with the Atmos Rewards program. The amendment provides for a repricing of the loan under the facility.

Subsequent to quarter end, the Company prepaid approximately $67 million of variable-rate debt acquired with Hawaiian.

Debt maturity

At September 30, 2025, debt principal payments for the next five years and thereafter are as follows:

(a) The Company recognized the long-term debt assumed in the Hawaiian acquisition at fair value as of the acquisition date. As a result, the amount in the unaudited condensed consolidated balance sheets will not equal the total balance of remaining principal payments presented in this table.

Bank lines of credit

Alaska and Hawaiian have a combined revolving credit facility for $850 million, expiring in September 2029, which is secured by a combination of aircraft, slots, gates, routes, and other eligible assets. The facility has a variable interest rate based on SOFR plus a specified margin. As of September 30, 2025, the Company hadno outstanding borrowing under this facility.

Alaska and Hawaiian have a second combined credit facility with multiple lenders for $106 million, expiring in June 2027, which is secured by aircraft. Letters of credit have been secured against this facility.

Covenants

Certain debt agreements and credit facilities contain customary financial covenants, including compliance with certain debt service coverage ratios and minimum liquidity requirements. The Company and its subsidiaries were in compliance with these covenants as of September 30, 2025.

NOTE 6. EMPLOYEE BENEFIT PLANS

Net periodic benefit costs for qualified pension plans include the following:

NOTE 7. COMMITMENTS AND CONTINGENCIES

Aircraft commitments

Alaska and Hawaiian have contractual commitments for aircraft with Boeing. Horizon has contractual commitments for aircraft with Embraer. The amounts disclosed below reflect commitments for firm aircraft and engine orders. Option deliveries are excluded until exercise.

Boeing has communicated that certain B737 and B787 aircraft are expected to be delivered later than the contracted delivery timing. For Alaska, this includes certain B737-8 aircraft contracted for delivery in 2025 that have moved later in the contracted year or into 2026, and B737-10 aircraft contracted for delivery between 2025 and 2027 that have moved to between 2027 and 2029, pending certification of the aircraft type. For Hawaiian, this includes certain B787 aircraft contracted for delivery in 2025 that have moved later in the contracted year or into 2026. Management expects that other Boeing aircraft deliveries could be delayed beyond the contractual delivery. The tables below reflect Boeing's communications.

Details for contractual aircraft delivery commitments as of September 30, 2025:

Capacity purchase agreement (CPA) commitments

Alaska has obligations associated with its CPA with SkyWest. The amounts disclosed below consider certain assumptions regarding the level of flying performed by the carrier on behalf of Alaska and exclude lease costs associated with the CPA.

A summary of aircraft and capacity purchase agreement commitments as of September 30, 2025:

Contingencies

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.

As part of the 2016 acquisition of Virgin America, Alaska assumed responsibility for the Virgin trademark license agreement with the Virgin Group. In 2019, pursuant to that agreement's venue provision, the Virgin Group sued Alaska in England, alleging that the agreement requires Alaska to pay $8 million per year as a minimum annual royalty through 2039, adjusted annually for inflation and irrespective of Alaska's actual use (or non-use) of the mark. Alaska stopped making royalty payments in 2019 after ending all use of the Virgin brand. On February 16, 2023, the commercial court issued a ruling adopting Virgin Group’s interpretation of the license agreement. Alaska appealed the decision. On June 11, 2024, the appellate court issued a final decision affirming the lower court ruling in favor of the Virgin Group. Alaska also commenced a separate claim for breach of the agreement against the Virgin Group that may affect Alaska’s total liability in the matter. Alaska holds an accrual for $65 million in Other accrued liabilities in the unaudited condensed consolidated balance sheets, representing the expenses associated with the trademark license agreement incurred through September 30, 2025, and management's current estimate of the amount due to the Virgin Group. Subsequent to quarter end, Alaska was ordered to pay Virgin Group $32 million, representing past due royalties through September 2022, when Alaska commenced its separate claim against Virgin Group. The payment was fully accrued for as of September 30, 2025.

Credit card agreements

Alaska and Hawaiian have agreements with certain credit card companies to process the sale of tickets and other services. Under these agreements, there are material adverse change clauses that, if triggered, could result in the credit card companies holding back a reserve of up to 100% of the credit card receivable balance associated with that processor, which would result in a restriction of cash. For example, certain agreements require Alaska to maintain a reserve if Air Group's credit rating is downgraded to or below a rating specified by the agreement or if its cash and marketable securities balance fell below $500 million. The Company is not currently required to maintain any reserve under these agreements. If Air Group were unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material impact on the Company's operations, business or financial condition.

NOTE 8. SHAREHOLDERS' EQUITY

Common stock repurchase

In December 2024, the Board of Directors authorized a $1 billion share repurchase program. Under this program, the Company repurchased 10.6 million shares for $540 million during the nine months ended September 30, 2025. As of September 30, 2025, the program has $460 million remaining. Under the previous share repurchase program, the Company repurchased 1.6 million shares for $63 million during the nine months ended September 30, 2024.

CARES Act warrant issuances

As taxpayer protection required under the Payroll Support Program under the CARES Act, the Company granted the U.S. government a total of 1,455,437 warrants to purchase ALK common stock in 2020 and 2021. An additional 427,080 warrants were issued in conjunction with a draw on the CARES Act Loan in 2020. The value of the warrants was estimated using a Black-Scholes option pricing model and was recorded in stockholders' equity at issuance. These warrants are non-voting, freely transferable, may be settled as net shares or in cash at the Company's option, and have a five-year term. In 2024, the warrants were sold at auction to a third party investor. The sale had no impact to the amount held on the Company's balance sheet.

In the first quarter of 2025,1,660,705 of the warrants were exercised, with an exercise price of $31.61 for 1,355,206 warrants and $52.25 for 305,499 warrants, in a net share settlement for 809,768 shares of ALK common stock.221,812 warrants were outstanding with an exercise price of $66.39 as of September 30, 2025.

NOTE 9. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding, including the dilutive effect of outstanding share-based instruments such as employee stock awards and warrants.

NOTE 10. ACCUMULATED OTHER COMPREHENSIVE LOSS

A roll forward of the amounts included in accumulated other comprehensive loss is shown below for the three and nine months ended September 30, 2025 and 2024:

NOTE 11. OPERATING SEGMENT INFORMATION

As of September 30, 2025, Air Group has three operating airlines – Alaska, Hawaiian, and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon and SkyWest.

Air Group's Chief Operating Decision Maker (CODM) is its President and CEO. In the third quarter of 2024, the CODM began to review financial results for Hawaiian to assess performance and make resource allocation decisions for Air Group. As a result, the Company determined Hawaiian was an operating and reportable segment.

Air Group's network and schedules are centrally managed for all its operating airlines and CPA flying. Managing the business in an integrated manner enables the Company to leverage its comprehensive network, route scheduling system, and fleet as a single business. The CODM makes resource allocation decisions to deliver optimized consolidated financial results, regardless of the profitability of an individual segment. Subsequent to quarter end, Air Group combined Alaska and Hawaiian under a single operating certificate. Management anticipates the discrete information provided to the CODM may similarly be combined. Management is considering other changes to internal reporting that may impact the discrete information provided to the CODM to better align with the way the business is managed. These changes may have an impact on the Company's reportable segments once finalized.

The CODM reviews financial performance information as part ofthree reportable operating segments which are described above:

•Alaska Airlines - includes scheduled air transportation on Alaska's Boeing aircraft for passengers and cargo.

•Hawaiian Airlines- includes scheduled air transportation on Hawaiian's Boeing and Airbus aircraft for passengers and cargo.

•Regional - includes Horizon's and other third-party carriers’ scheduled air transportation on E175 aircraft for passengers under CPAs. This segment includes the actual revenue and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.

The below tables present segment revenue and expenses for Air Group's reportable segments. Air Group's measure of segment profit or loss is pretax profit, which is used by the CODM to evaluate financial results. Additionally, reconciliations of the pretax profit of all reportable segments to Air Group's consolidated income before income tax are provided. Certain immaterial reclassifications have been made within segment operating expenses between the Alaska Airlines and Regional segments for the three and nine months ended September 30, 2024. These reclassifications had no impact to consolidated results.

(a) Revenue and profit or loss from segments below the quantitative thresholds as well as other immaterial business units, including Air Group parent company activity, Horizon Air operations, McGee Air Services, consolidating entries and intercompany eliminations.

(b) Includes miscellaneous personnel, software, and services costs, as well as other non-operating activity.

Total capital expenditures were as follows:

Total assets were as follows(b):

(a) Primarily consists of Horizon Air capital expenditures, including non-cash expenditures for debt financing of certain E175 deliveries of $69 million and $68 million in the nine months ended September 30, 2025 and 2024.

(b) No assets are allocated to the Regional segment as it represents only revenue and expenses associated with regional flying. The related assets associated with regional flying are allocated to other segments.

NOTE 12. SPECIAL ITEMS

The Company has classified certain operating activities as special items due to their unusual or infrequently occurring nature. Disclosing information about these items separately may assist with comparable year over year analysis and allow stakeholders to better understand Air Group's results of operations.

Integration costs: Integration costs were associated with the acquisition of Hawaiian Airlines and consist of employee-related costs, legal and professional fees, technology costs, and other merger costs.

Labor and other: Labor and other costs in 2025 were primarily for changes to Alaska flight attendants' sick leave benefits pursuant to a new collective bargaining agreement ratified in the first quarter of 2025. Costs in 2024 were associated with new labor agreements, the retirement of Alaska's Airbus and Horizon's Q400 aircraft, and certain litigation items.