ALASKA AIR GROUP, INC.

To the Shareholders and Board of Directors

Alaska Air Group, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Alaska Air Group, Inc. and subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 12, 2026 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of Atmos Rewards model

As discussed in Note 1 and Note 2 to the consolidated financial statements, the Company has a loyalty program (Atmos Rewards) which provides frequent flyer travel awards to program members based upon accumulated loyalty points. Subsequent to the acquisition of Hawaiian Airlines, the Company operated two distinct loyalty programs, Alaska Airlines’ Mileage Plan and Hawaiian Airlines’ HawaiianMiles. In September 2025, the Company merged all outstanding points balances and financial liabilities into Alaska's existing program, Atmos Rewards. Loyalty points are earned through travel, purchases using one of the Atmos Rewards or Hawaiian Airlines co-branded credit cards and purchases from other participating partners. The total deferred revenue liability included on the consolidated balance sheets represents the remaining transaction price that has been allocated to loyalty program performance obligations not yet satisfied. The Company utilized a complex model to account for the Atmos Rewards loyalty program, involving numerous inputs and assumptions. Deferred revenues related to the Atmos Rewards program were $2.9 billion as of December 31, 2025.

We identified the assessment of the Atmos Rewards model as a critical audit matter. This was due to the high degree of auditor judgment required to assess that sufficient audit evidence was obtained over the model as well as the key inputs and assumptions used to develop estimates of Atmos Rewards revenue and deferred revenue due to the complex design of the model. Key inputs include certain points credited and points redeemed and key assumptions include estimated breakage and the relative standalone selling prices for performance obligations in a co-branded affinity agreement.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s model. This included controls related to the integrity of the model as well as the key inputs and key assumptions utilized in the model. We checked the accuracy of key calculations utilized in the Atmos Rewards model. We tested the completeness and accuracy of information technology system data used to determine the points credited and points redeemed inputs. We considered changes in the Atmos Rewards program terms, economic conditions and customer behavior for potential changes in the breakage rate or the relative selling prices for performance obligations in a co-branded affinity agreement. We evaluated fluctuations in the associated balances in relation to program changes, economic conditions, and observed industry trends and events.

In addition, we evaluated the sufficiency of audit evidence obtained over the Atmos Rewards model by assessing the results of procedures performed.

/s/ KPMG LLP

We have served as the Company's auditor since 2004.

Seattle, Washington

February 12, 2026

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ("Air Group" or "the Company"), and its primary subsidiaries, Alaska Airlines, Inc. (Alaska), Horizon Air Industries, Inc. (Horizon), and Hawaiian Holdings, Inc. (Hawaiian) (starting September 18, 2024). Purchase accounting impacts resulting from the Hawaiian acquisition are included as of September 18, 2024. The consolidated financial statements also include McGee Air Services, a ground services subsidiary of Alaska, and other immaterial business units. All intercompany balances and transactions have been eliminated. Certain rows, columns, figures, or percentages may not recalculate due to rounding.

Use of estimates

These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and their preparation requires the use of management's estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these estimates and assumptions due to risks and uncertainties.

Cash, cash equivalents, and restricted cash

Cash equivalents consist of highly liquid investments with original maturities of three months or less, such as money market funds, commercial paper, and certificates of deposit. They are carried at cost, which approximates market value. The Company reduces cash balances when funds are disbursed. Due to the time delay in funds clearing the banks, the Company normally maintains a negative balance in its cash disbursement accounts, which is reported as a current liability. The amount of the negative cash balance was $8 million and $7 million at December 31, 2025 and 2024, and is included in accounts payable, with the change in the balance during the year included in other financing activities in the consolidated statements of cash flows.

Restricted cash primarily includes funds held in a controlled account for debt service associated with Alaska's loyalty and intellectual brand offering. The Company also has certain restricted cash balances used to guarantee various letters of credit, self-insurance programs, or other contractual rights. The Company has both current and non-current restricted cash balances, which are presented in the consolidated balance sheets within Restricted cash and Other noncurrent assets. They are carried at cost, which approximates fair value.

Marketable securities

Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All cash equivalents and short-term investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in market value are reflected in accumulated other comprehensive income (loss).

The Company evaluates the investment portfolio on a quarterly basis for expected credit losses. The Company uses a systematic methodology that groups assets by relevant market sector, and considers available quantitative and qualitative evidence in evaluating potential allowances for credit losses. If the cost of an investment exceeds its fair value, management evaluates, among other factors, general market and industry conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, the Company's intent and ability to hold, or plans to sell, the investment. In the event a decline in fair value is determined to be the result of an expected credit loss, an allowance is recorded to Other - net in the consolidated statements of operations.

Management does not believe any unrealized losses are the result of expected credit losses based on the Company's evaluation of available evidence as of December 31, 2025.

Receivables - net

Receivables primarily consist of amounts due from credit card processors for the sale of passenger tickets, from affinity card partners and from other partners for the purchase of points under the Company's loyalty program, from Amazon for reimbursable expenses under the ATSA, and from taxing authorities for certain tax receivables. Given the nature of these receivables, reserves are immaterial to the overall balance.

Inventories and supplies - net

Expendable aircraft parts, materials and supplies are stated at average cost and are included in Inventories and supplies - net. An obsolescence allowance for expendable parts is accrued based on estimated lives of the corresponding fleet type and salvage values. The allowance for expendable inventories was $86 million and $90 million at December 31, 2025 and 2024. Removals from the reserve in 2025 were immaterial. Inventory and supplies - net also includes fuel inventory of $33 million and $30 million at December 31, 2025 and 2024. Repairable and rotable aircraft parts inventories are included in flight equipment.

Property, equipment, and depreciation

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives less an estimated salvage value, which are as follows:

(a) Based on remaining useful life as of September 18, 2024, the date of the Hawaiian acquisition and when the fair value of acquired aircraft was remeasured.

Near the end of an asset's estimated useful life, management updates the salvage value estimates based on current market conditions and expected use of the asset. Repairable and rotable aircraft parts included in Aircraft and other flight equipment are depreciated over the associated fleet life.

Capitalized interest, based on the Company’s weighted-average borrowing rate, is added to the cost of the related asset, and is depreciated over the estimated useful life of the asset.

The Company capitalizes certain costs related to the acquisition and development of computer software and amortizes these costs using the straight-line method over the estimated useful life of the software. The net book value of computer software, which is included in Other property and equipment in the consolidated balance sheets, was $118 million and $155 million at December 31, 2025 and 2024, respectively. Amortization expense related to computer software was $79 million, $47 million, and $25 million for the years ended December 31, 2025, 2024, and 2023, respectively.

The Company evaluates long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the total carrying amount of an asset or asset group may not be recoverable. The Company groups assets for purposes of such reviews at the lowest level at which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities, which is generally the fleet level. An impairment loss is considered when estimated future undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition are less than its carrying amount. If the asset or asset group is not considered recoverable, a write-down equal to the excess of the carrying amount over the fair value will be recorded. For these purposes, the fair value is estimated using a combination of Level 2 inputs, including published market value estimates for the assets being assessed, and Level 3 inputs, including Company-specific and asset-specific indicators.

In 2025, Alaska entered into an agreement with a third-party to sell its 12 B737-900 aircraft. All aircraft were sold by December 31, 2025. The Company recognized a gain of $57 million associated with these sales, which was recorded within Other operating expenses in the consolidated statements of operations.

Aircraft maintenance deposits

Certain leases include contractually required maintenance deposit payments to the lessor, which collateralize the lessor for future maintenance events should the Company not perform required maintenance. Most lease agreements provide that maintenance deposits are reimbursable upon completion of the major maintenance event in an amount equal to the lesser of (i) the amount qualified for reimbursement from maintenance deposits held by the lessor associated with the specific major maintenance event or (ii) the qualifying costs related to the specific major maintenance event. The Company establishes maintenance deposits assets on the balance sheet using estimates of the anticipated timing and cost of the specific major maintenance events, such that the accounting deposits do not exceed the amount qualified for reimbursement. As of December 31, 2025, total aircraft maintenance deposits recorded on the consolidated balance sheets was $25 million, with $15 million included in Other current assets and $10 million included in Other noncurrent assets, compared to $56 million as of December 31, 2024, with $42 million included in Other current assets and $14 million included in Other noncurrent assets.

Any portion of aircraft maintenance deposits that is not expected to be claimable in the standard course of operating the aircraft is recorded as an expense in Aircraft maintenance in the consolidated statements of operations.

Leased aircraft return costs

Costs to return leased aircraft are accrued when the costs are probable and reasonably estimable, usually over the twelve months prior to the lease return, unless a determination is made to remove the leased asset from operation. If the leased aircraft is removed from the operating fleet, the estimated cost to return is accrued at the time of removal. If a leased aircraft has a known early retirement date in the future, the estimated cost to return is accrued through the retirement date. Any accrual is based on the time remaining on the lease, planned aircraft usage, and the provisions included in the lease agreement, although the actual amount due to any lessor upon return may not be known with certainty until lease termination.

As leased aircraft are returned, payments made reduce the outstanding lease return liability. As of December 31, 2025, the total outstanding liability was $72 million, with $5 million included in Other accrued liabilities and $67 million included in Other liabilities, compared to $74 million as of December 31, 2024, with $20 million included in Other accrued liabilities and $54 million included in Other liabilities.

Expense associated with lease returns in the standard course of operating the aircraft is included in Aircraft maintenance in the consolidated statements of operations. Expense associated with lease returns when aircraft are permanently parked or anticipated to be removed from the fleet before its contractual return date is recorded as a charge at the date the aircraft is permanently parked, regardless of contractual return date, and is classified within Special items - operating in the consolidated statements of operations.

Passenger ticket and ancillary services revenue

The primary performance obligation on a typical passenger ticket is to provide air travel to the passenger. Ticket revenue is collected in advance of travel and recorded as air traffic liability on the consolidated balance sheets. The Company satisfies its performance obligation and recognizes ticket revenue for each flight segment when the transportation is provided.

Ancillary passenger revenue relates to items such as checked-bag fees and on-board food and beverage sales, all of which are provided at time of flight. As such, the obligation to perform these services is satisfied at the time of travel and is recorded with ticket revenue in Passenger revenue.

Revenue is also recognized for tickets that are expected to expire unused, a concept referred to as “passenger ticket breakage.” Passenger ticket breakage is recorded at the intended travel date using estimates made at the time of sale based on the Company’s historical experience of expired tickets, and other facts such as program changes and modifications. Differences between advance passenger ticket breakage estimates and actual expirations are recognized as revenue when changes to estimate assumptions are observed or when tickets are no longer valid.

In addition to selling tickets on its own marketed flights, Alaska has interline and codeshare agreements with partner airlines under which it sells multi-city tickets with one or more segments of the trip flown by a partner airline, or it operates a connecting flight sold by a partner airline. Each segment in a connecting flight represents a separate performance obligation. Revenue on segments sold and operated by the Company is recognized as Passenger revenue in the gross amount of the allocated ticket price when the travel occurs, while the commission paid to the partner airline is recognized as a selling expense when the related transportation is provided. Revenue on segments operated by a partner airline is deferred for the full amount of the consideration received at the time the ticket is sold and, once the segment has been flown the Company records the net amount, after compensating the partner airline, as Cargo and other revenue.

A portion of revenue from our loyalty program is recorded in Passenger revenue. As members are awarded loyalty points on flown tickets, these points become a distinct performance obligation to the Company. The Company allocates the transaction price to each performance obligation identified in a passenger ticket contract on a relative standalone selling price basis. The standalone selling price for loyalty points issued is discussed in the Loyalty points section of this Note below. The amount allocated to the loyalty points is deferred on the balance sheet. Once a member travels using a travel award redeemed with loyalty points on one of the Company's airline carriers, the revenue associated with those loyalty points is recorded as Passenger revenue.

Taxes collected from passengers, including transportation excise taxes, airport and security fees, and other fees, are recorded on a net basis within Passenger revenue in the consolidated statements of operations.

For performance obligations with performance periods of less than one year, GAAP provides a practical expedient that allows the Company not to disclose the transaction price allocated to remaining performance obligations and the timing of related revenue recognition. As passenger tickets expire one year from ticketing, if unused or not exchanged, the Company elected to apply this practical expedient.

Cargo and other

Cargo revenue is generated through providing freight and mail services using both freighter aircraft and the bellies of passenger aircraft. Cargo service performance obligations are met and revenue is recognized when the shipment arrives at its final destination, or is transferred to a third-party carrier for delivery.

The Company also provides cargo services under an ATSA with Amazon. The agreement has an eight-year term, expiring in 2030 with additional renewal options. Under the ATSA, the Company operates 10 A330-300F aircraft and supplies flight crews, performance maintenance and certain administrative functions, and procures aircraft insurance. In return, the Company receives a fixed monthly fee per aircraft, a per flight hour fee, and a per flight cycle fee for each flight cycle operated, and is reimbursed for certain operating expenses, including fuel, certain maintenance, and insurance premiums. Performance obligations under the ATSA are met as services are rendered, with gross revenue and operating costs recorded on the consolidated statements of operations. Reimbursable costs, based on actual amounts incurred, are recorded in Cargo and other revenue, net of the corresponding fulfillment costs. The transaction price, updated periodically for changes to variable cost estimates, is allocated to performance obligations based on their relative standalone selling prices.

Other revenue, including lounge memberships, hotel and car commissions, travel insurance, and certain other immaterial items not intrinsically tied to providing air travel to passengers, is recognized when these services are rendered and recorded as Cargo and other revenue.

Loyalty points

The Company’s loyalty program provides travel awards to program members based upon accumulated loyalty points. Loyalty points are earned through travel, purchases using one of the Atmos Rewards or Hawaiian Airlines co-branded credit cards and purchases from other participating partners. Outstanding loyalty points have no expiry date. The Company offers redemption of loyalty points through free, discounted, or upgraded air travel on flights operated by Alaska, and its regional partners or on one of its more than 30 partners, as well as redemption for hotel stays, events, and curated experiences.

The Company uses a relative standalone selling price to allocate consideration to material performance obligations in contracts with customers that include loyalty points. As directly observable selling prices for loyalty points are not available, the Company determines the standalone selling price of loyalty points primarily using actual ticket purchase prices for similar tickets flown, adjusted for the likelihood of redemption, or breakage. In determining similar tickets flown, the Company considers current market prices, class of service, type of award, and other factors. For loyalty points accumulated through travel on partner airlines, the Company uses actual consideration received from the partners.

Revenue related to air transportation is deferred in the amount of the relative standalone selling price allocated to the loyalty points as they are issued. The Company satisfies its performance obligation when the loyalty points are redeemed and the related air transportation is delivered.

The Company estimates breakage for the portion of loyalty points not expected to be redeemed using a statistical analysis of historical data, including source of loyalty points earned, slow-moving, and low-credit accounts, among other factors. The Company recognizes breakage proportionally as loyalty points are redeemed. The Company reviews the breakage rates used on an biennial basis.

Subsequent to the acquisition of Hawaiian, Air Group operated two distinct loyalty programs. In September 2025, the Company merged all outstanding points balances and related liabilities into the Atmos Rewards program. All points were transferred at a one-to-one ratio, and no incremental liabilities or changes to balances were incurred as part of this transfer process.

The total deferred revenue liability included on the consolidated balance sheets represents the remaining transaction price that has been allocated to loyalty program performance obligations not yet satisfied by the Company. In general, current deferred revenue will be recognized as revenue within 12 months and long-term deferred revenue will be recognized as revenue over a period of approximately three to four years. This period of time represents the average time that members have historically taken to earn and redeem points.

Loyalty points are combined into one homogeneous pool and are not specifically identifiable once deposited. As such, loyalty revenue disclosed earlier in this Note comprises points that were part of the deferred revenue and liabilities balances at the beginning of the period and points that were issued during the period.

Co-branded credit card agreements and other

In addition to loyalty points, the co-branded credit card agreements (the Agreements) also provide customers with some or all of the following performance obligations: free bag waivers, Companion Fare offers to purchase an additional ticket at a discount, Global Companion awards to redeem points when booking awards for two people, other discounts and purchase credits, marketing, priority boarding, and the use of intellectual property including the brand (unlimited access to the use of the Company’s brand and loyalty program member lists), which is the predominant element in the Agreements. The co-brand card bank partners are the customer for some elements, including the brand and marketing, while the members of the loyalty programs are the customer for other elements such as loyalty points, bag waivers, priority boarding, and other discounted travel.

At the inception of the Agreements, management estimated the selling price of each of the performance obligations. The objective was to determine the price at which a sale would be transacted if the product or service was sold on a stand-alone basis. The Company determined its best estimate of selling price for each element by considering multiple inputs and methods including, but not limited to, the estimated selling price of comparable travel, discounted cash flows, brand value, published selling prices, number of points awarded, and number of points redeemed. The Company estimated the selling prices and volumes over the term of the Agreements in order to determine the allocation of proceeds to each of the multiple deliverables. The estimates of the standalone selling prices of each element generally do not change subsequent to the original valuation of the contract unless the contract is materially modified, but the allocation between elements may change based upon the actual and updated projected volumes of each element delivered during the term of the contract.

Consideration received from the bank partners is variable and is primarily driven by consumer spend on the cards, among other items. The Company allocates consideration to each of the performance obligations using their relative standalone selling price. Because the performance obligation related to providing use of intellectual property including the brand is satisfied over time, it is recognized in Loyalty program other revenue in the period that those elements are sold. The Company records passenger revenue related to the air transportation and certificates for discounted companion travel when the transportation is delivered.

In contracts with non-bank partners, the Company has identified two performance obligations in most cases - travel and brand. The travel performance obligation is deferred until the transportation is provided in the amount of the estimated standalone selling price of the ticket, less breakage, and the brand performance obligation is recognized using the residual method as commission revenue when the brand element is sold.

Partner airline loyalty

The Company's airlines have interline and loyalty arrangements with certain airlines whereby its members may earn and redeem points on those airlines, and members of a partner airline’s loyalty program may earn and redeem loyalty program credits on flights operated by our airlines. When a member earns credits on a partner airline, the partner airline remits a contractually-agreed upon fee to the Company which is deferred until credits are redeemed. When a member redeems credits on a partner airline, the Company pays a contractually agreed upon fee to the other airline, which is netted against the revenue recognized associated with the award travel. When a member of a partner airline redeems loyalty program credits on the Company's airlines, the partner airline remits a contractually-agreed upon amount to the Company, recognized as Passenger revenue upon travel. If the partner airline’s member earns loyalty program credits on our flight, the Company remits a contractually-agreed upon fee to the partner airline and records a commission expense.

Aircraft and engine maintenance expense

Maintenance and repairs on our aircraft are expensed when incurred. Major modifications that extend the life or improve the usefulness of aircraft are capitalized and depreciated over their estimated period of use. Certain contractual commitments require monthly payments based upon utilization, such as flight hours, cycles, and age of the aircraft. In turn, these maintenance agreements may transfer certain risks to the third-party service provider. Alaska, Hawaiian, and Horizon have contracts for maintenance on certain aircraft engines, avionics, landing systems, and other components.

Selling costs

Certain costs such as credit card fees, travel agency and other commissions paid, as well as Global Distribution Systems booking fees, are incurred when the Company sells passenger tickets and ancillary services in advance of the travel date. The Company defers such costs and recognizes them as expenses when the travel occurs. Prepaid expense recorded on the consolidated balance sheets for such costs was $53 million and $50 million as of December 31, 2025 and December 31, 2024. The Company recorded related expense on the consolidated statements of operations of $443 million, $387 million and $334 million for the twelve months ended December 31, 2025, 2024, and 2023.

Advertising expenses

The Company's advertising expenses include advertising, sponsorship, and promotional costs. Advertising production costs are expensed as incurred. Advertising expense was $101 million, $97 million, and $78 million during the years ended December 31, 2025, 2024, and 2023.

Derivative financial instruments

The Company's financial results can be significantly impacted by changes in interest rates. In an effort to manage exposure, the Company has entered into interest rate derivative instruments. These instruments qualify as cash flow hedges and are recognized at fair value on the balance sheet. The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the instrument, the ineffective portion of the hedge is recognized in interest expense, if material. Cash flows related to these derivative instruments are classified as operating cash flows within the consolidated statements of cash flows.

Income taxes

The Company uses the asset and liability approach for accounting for and reporting income taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance would be established, if necessary, for the amount of any tax benefits that, based on available evidence, are not expected to be realized. As of December 31, 2025, there is a partial valuation allowance against net deferred tax assets. The Company accounts for unrecognized tax benefits in accordance with the applicable accounting standards.

See Note 7 to the consolidated financial statements for more discussion of income taxes.

Stock-based compensation

The Company grants equity awards to directors, officers, and employees in exchange for services. Equity awards are measured based on the fair value of the award as of the grant date. Expense is recognized over the award's requisite service period, which is generally the vesting period of the award. No compensation expense is recognized for awards for which participants do not render the requisite services. For equity awards earned based on performance or upon occurrence of a contingent event, expected performance achievement of the awards will be estimated and related compensation expense is recorded over the service period. An adjustment is recorded to compensation expense if the expected performance achievement changes. Stock-based compensation expense for officers and employees is recorded in wages and benefits in the consolidated statements of operations.

Recent accounting pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220), which requires public entities to disclose information about purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion for each income statement line item that contains those expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.

In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Topic 350), which is intended to improve the operability and application of guidance related to capitalized software development costs. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-06.

Recently adopted accounting pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), which requires public entities to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction on an annual basis. The Company adopted this guidance on a prospective basis effective December 31, 2025, resulting in modifications to our income tax disclosures in Note 7 of our consolidated financial statements. The adoption did not have an impact on our financial position or results of operations.

NOTE 2. 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 program. 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 comprises freight and mail revenue, including services provided to Amazon under the ATSA, and to a lesser extent, other ancillary revenue products such as lounge membership and certain commissions.

The level of detail within the Company’s 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 consolidated statements of operations:

Domestic passenger revenue includes operations in the U.S., including 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 consolidated statements of operations:

Cargo and Other Revenue

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

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $1.2 billion in 2025 that was in air traffic liability at December 31, 2024 and $766 million in 2024 that was in air traffic liability at December 31, 2023. The amount recognized in 2024 from the prior year-end air traffic liability balance does not include Hawaiian passenger revenue as the $513 million in air traffic liability assumed from Hawaiian on September 18, 2024 was not included within the Company's balance as of December 31, 2023.

Loyalty program assets and liabilities

The Company records a receivable for amounts due from the affinity card partners and from other partners as points are sold until the payments are collected. The Company had $154 million and $176 million of such receivables as of December 31, 2025 and December 31, 2024.

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

NOTE 3. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of purchase price over the fair value of the related net assets acquired in the Company's acquisitions of Hawaiian Airlines and Virgin America, and is not amortized. The total balance of goodwill is associated with the Alaska Airlines and Hawaiian Airlines reporting units and was $2.7 billion as of December 31, 2025 and December 31, 2024. The Company reviews goodwill for impairment annually in the fourth quarter, or more frequently if events or circumstances indicate that an impairment may exist. The assessment utilizes either a qualitative or quantitative approach. The qualitative approach considers factors such as Alaska Air Group market capitalization and other market trends, and unobservable inputs, including Company specific cash flow and performance information. If it is determined that it is more likely than not that the asset may be impaired, management utilizes a quantitative approach to assess the asset's fair value and the amount of impairment and a charge may be recorded. In 2025, the fair value of the Alaska Airlines and Hawaiian Airlines reporting units exceeded their carrying value.

Intangible assets

The Company has intangible assets that were recognized with the acquisitions of Hawaiian Airlines and Virgin America. Indefinite-lived intangibles are recorded at fair value upon acquisition and are not amortized, but are tested at least annually for impairment using a similar methodology to goodwill, as described above. Purchased intangible assets with finite lives are recorded at cost, net of accumulated amortization. The Company amortizes its intangible assets on a straight-line basis over an estimated useful life. The weighted average amortization period at the time of acquisition on September 18, 2024 for our customer relationship and co-brand partnership intangible assets was 18 years and 3 years, respectively.

Amortization of acquired intangible assets is as follows:

Amortization expense of intangible assets was $58 million in 2025, $16 million in 2024, and $5 million in 2023. Projected amortization expense for 2026, 2027, 2028, 2029, and 2030 is $56 million, $45 million, $16 million, $16 million, and $16 million, respectively.

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 on a recurring basis

As of December 31, 2025, cost basis and fair value for marketable securities was $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 and duration exposure, credit ratings of the securities, liquidity profiles, and other observable information as of December 31, 2025.

Fair values of financial instruments on the consolidated balance sheet:

The fair value of interest rate swaps on the balance sheet was not material as of December 31, 2025 and December 31, 2024. The amounts recognized in interest expense and in other comprehensive income were not material in 2025, 2024 and 2023.

Activity and maturities for marketable securities

Maturities for marketable securities:

Proceeds from sales and maturities of marketable securities were $1.3 billion, $1.8 billion, and $1.2 billion in 2025, 2024, and 2023.

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 $732 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 consolidated balance sheet 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 lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. No material impairments were recorded in 2025.

Equity method and other investments

Air Group has made various investments in funds and companies related to innovation and sustainability in the aviation industry. We account for investments under the equity method if we are able to exercise significant influence over the investee. We record our share of our equity method investees’ financial results within the non-operating expense section of the consolidated statements of operations. Investments for which we do not have significant influence over are recorded at fair value or at cost, adjusted for any changes in price or impairments, if the fair value is not readily determinable. As of December 31, 2025 and December 31, 2024, the combined carrying value of these investments included in Other noncurrent assets in the consolidated balance sheets was $74 million and $51 million.

NOTE 5. DEBT

Debt obligations on the consolidated balance sheet:

Approximately $651 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at December 31, 2025, resulting in an effective weighted-average interest rate for the full debt portfolio of 4.6%.

In 2025, the Company incurred debt of $885 million from multiple lenders and sources including $816 million secured by aircraft, and $69 million incurred as part of an agreement to finance certain E175 deliveries. Debt from this agreement is reflected as a non-cash transaction within the supplemental disclosures in the consolidated statements of cash flows. In 2025, the Company made scheduled debt payments of $452 million and prepayments of $67 million.

In 2025, interest rates on certain PSP debt were adjusted from a fixed-rate to a variable-rate, in accordance with the terms of the loan agreement. Additionally, 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 year-end, the Company incurred additional fixed-rate debt of $111 million due through 2038 and issued prepayment notices to prepay $102 million of variable rate debt.

Debt maturity

At December 31, 2025, long-term 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 consolidated balance sheets will not equal the total balance of remaining principal payments presented in this table.

Bank lines of credit

Alaska has a revolving credit facility for $850 million, expiring in September 2029, which is secured by a combination of Alaska and Hawaiian aircraft, slots, gates, routes, and other eligible assets. The facility has a variable interest rate based on SOFR plus a specified margin. As of December 31, 2025, the Company hadno outstanding borrowing under this facility.

Alaska has a second credit facility for $106 million, expiring in June 2027, which is secured by aircraft. Alaska has secured letters of credit 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 December 31, 2025.

NOTE 6. LEASES

The Company leases property and equipment in the normal course of business under operating and finance leases. Leased assets are categorized into four asset classes: aircraft, capacity purchase arrangements for aircraft operated by third-party carriers (CPA aircraft), airport and terminal facilities, and corporate real estate and other equipment. Operating rent expense is recognized on a straight-line basis over the term of the lease.

As most leases do not provide a readily determinable implicit interest rate, the Company typically utilizes the incremental borrowing rate (IBR) based on information available at the commencement date of the lease to determine the present value of lease payments. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rate.

Aircraft and engines

At December 31, 2025, the Company had leases for 10 B737-800 aircraft,2 B737-800 freighter aircraft,14 B737-9 aircraft,12 A330-200 aircraft, and 4 A321-200neo aircraft. Of these leases,4 A330-200 aircraft and 2 A321neo aircraft are accounted for as finance leases, while the remaining are accounted for as operating leases. The Company also leases 10 A330-300 freighter aircraft under the ATSA, but because it does not have the right to control the use of the aircraft, the aircraft are not accounted for as a lease in the consolidated financial statements. Remaining lease terms for aircraft range from 1 to 10 years. Some leases have options to extend, subject to negotiation at the end of the term. As extension is not certain, and rates are highly likely to be renegotiated, the extended term is only capitalized when it is reasonably determinable. While aircraft rent is primarily fixed, certain leases contain rental adjustments throughout the lease term which would be recognized as variable expense as incurred.

Capacity purchase agreements with aircraft (CPA aircraft)

At December 31, 2025, Alaska had a CPA with SkyWest covering 42 E175 aircraft. Under this agreement, Alaska pays the carrier an amount which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. Alaska's CPA with Horizon, a wholly owned subsidiary, does not involve any leased aircraft.

The CPA aircraft have remaining lease terms ranging from 4 years to 9 years. Financial arrangements of the CPA include a fixed component, representing the costs to operate each aircraft which is capitalized. The CPA also includes variable rent based on actual levels of flying, which is expensed as incurred.

Airport and terminal facilities

The Company leases ticket counters, gates, cargo and baggage space, lounge space, office space and other support areas at numerous airports. For this asset class, the Company has elected to combine lease and non-lease components. The majority of airport and terminal facility leases are not capitalized because they do not meet the definition of controlled assets under the standard, or because the lease payments are entirely variable. For airports where leased assets are identified, and where the contract includes fixed lease payments, operating lease assets and lease liabilities have been recorded. The Company is also commonly responsible for maintenance, insurance and other facility-related expenses and services under these agreements. These costs are recognized as variable expense in the period incurred.

The Company leases twelve airport slots at LaGuardia Airport, eight airport slots at Reagan National Airport, and one airport gate at Dallas Love Field to third parties.

Corporate real estate and other leases

Leased corporate real estate is primarily for office space in hub cities, training centers, land leases, and reservation centers. For this asset class, the Company has elected to combine lease and non-lease components under the standard. Other leased assets are comprised of other ancillary contracts and items including Starlink satellite Wi-Fi equipment, leased data center space and ground equipment.

Lease position

Lease-related assets and liabilities recorded on the consolidated balance sheets was as follows:

Components of lease expense

The components of lease expense for operating and finance leases were as follows:

Supplemental cash flow information

The table below presents supplemental cash flow information related to leases. Operating cash flows associated with finance leases were not material for the three years ended December 31, 2025, 2024, and 2023.

Maturities of lease liabilities

Future minimum lease payments under non-cancellable leases as of December 31, 2025:

(a) Future minimum lease payments in the table reflect incentive credits related to leased B737-9 aircraft. As a result, the operating lease liabilities presented on the consolidated balance sheet will not agree to this table.

As of December 31, 2025, we have entered into but not yet commenced leases for Starlink satellite Wi-Fi equipment and for regional aircraft under CPAs. These leases will commence between 2026 and 2027, with lease terms ranging from 2030 to 2038. The liabilities expected with these leases are expected to be approximately $342 million.

NOTE 7. INCOME TAXES

Deferred income taxes

Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes. The Company has a net deferred tax liability, primarily due to differences in depreciation rates for federal income tax purposes and for financial reporting purposes.

Deferred tax assets and (liabilities) comprise the following:

The Company has gross state and local NOLs of approximately $1.7 billion, which will be carried forward. Certain state NOLs expire beginning in 2026 through 2045. The Company also has federal NOLs of approximately $2 billion, which will be carried forward and have an indefinite life.

Valuation allowances are provided to reduce deferred tax assets to an amount which will, more likely than not, be realized. The Company has determined it is more likely than not that a portion of the federal capital loss carryforward, and state NOL carryforward will not be realized and, therefore has recorded a valuation allowance of $46 million as of December 31, 2025. The Company has likewise concluded it is more likely than not that all of its federal and the remaining state deferred income tax assets will be realized and no valuation allowance has been recorded. The Company assesses valuation allowances each reporting period.

In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into U.S. law. Provisions applicable to the Company beginning in 2025 include the permanent allowance of full bonus depreciation, immediate expensing of domestic research and experimental costs, and changes to the calculation of adjusted taxable income under Section 163(j). In accordance with ASC 740, the Company recorded the effects of OBBBA in the year of enactment, resulting in an increase to the Company's net deferred tax liabilities and a decrease in income tax payable for the year ended December 31, 2025. Future provisions that have potential impact to the Company include limitations on the deductibility of executive compensation, and modifications to certain international tax rules.

Components of income tax expense (benefit)

The components of income tax expense (benefit) are as follows:

Income tax rate reconciliation

The Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table reconciles income tax expense calculated at the U.S. federal statutory rate of 21% to the Company's effective tax rate:

(1) The state and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category are Alaska, California, Hawai'i, Portland/Multnomah County, New York, and Oregon.

The following table reconciles income tax expense calculated at the U.S. federal statutory rate of 21% to the Company's effective tax rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09.

(a) Figures in the table above are rounded to the nearest million. As a result, a manual recalculation of the effective tax rate using these rounded figures may not agree directly to the Company's actual effective tax rate shown in the table.

Income Taxes Paid

The amounts of cash taxes paid by the Company are as follows:

Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:

(a) The amount of income taxes paid during the years ended December 31, 2025, 2024, and 2023 does not meet the 5% disaggregation threshold.

Uncertain tax positions

The Company has identified its federal tax return and its state tax returns in Alaska, California, and Oregon as “major” tax jurisdictions. A summary of the Company's jurisdictions and the periods that are subject to examination are as follows:

Certain tax years are subject to examination to the extent of net operating loss carryforwards.

Changes in the liability for gross unrecognized tax benefits, exclusive of related interest and penalties, during 2025, 2024 and 2023 are as follows:

As of December 31, 2025, the Company had $33 million of accrued tax contingencies, of which $27 million, if fully recognized, would decrease the effective tax rate. As of December 31, 2025, 2024 and 2023, the Company has accrued interest and penalties, net of federal income tax benefit, of $4 million, $4 million, and $2 million, respectively. These uncertain tax positions could change because of the Company's ongoing audits, settlement of issues, new audits, and status of other taxpayer court cases. The Company cannot predict the timing of these actions.

NOTE 8. EMPLOYEE BENEFIT PLANS

The Company hasfive qualified defined-benefit pension plans. Alaska Airlines is the plan sponsor forfour plans, covering salaried employees, pilots, clerical, office, passenger service employees, mechanics, and related craft employees. Hawaiian Airlines is the plan sponsor forone plan, covering eligible pilots. The defined-benefit plans provide benefits based on an employee’s term of service and average compensation for a specified period of time before retirement. The qualified defined-benefit pension plans are closed to new entrants. Twelve defined-contribution retirement plans cover various employee groups of Alaska, Hawaiian, Horizon, and McGee Air Services.

Accounting standards require recognition of the overfunded or underfunded status of an entity’s defined-benefit pension and other post-retirement plan as an asset or liability in the consolidated financial statements and requires recognition of the funded status in Accumulated other comprehensive loss (AOCL).

Qualified defined-benefit pension plans

The Company’s qualified defined-benefit pension plans are funded as required by the Employee Retirement Income Security Act of 1974. The defined-benefit plan assets consist primarily of marketable equity and fixed-income securities. The work groups covered by qualified defined-benefit pension plans include salaried employees, pilots, clerical, office, passenger service employees, mechanics, and related craft employees. The Company uses a December 31 measurement date for these plans. All plans are closed to new entrants.

Weighted average assumptions used to determine benefit obligations

The rates below vary by plan and related work group.

Weighted average assumptions used to determine net periodic benefit cost

The rates below vary by plan and related work group.

The discount rates are determined using current interest rates earned on high-quality, long-term bonds with maturities that correspond with the estimated cash distributions from the pension plans. In determining the expected return on plan assets, the Company assesses the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class is then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio.

Plan assets are invested in common commingled trust funds invested in equity and fixed income securities and in certain real estate assets. As of December 31, 2025, Alaska and Hawaiian plans are all now managed by a single investment manager. The Alaska and Hawaiian plans each have different investment strategies and asset allocations.

The target and actual asset allocation of the funds in Alaska's qualified defined-benefit plans, by asset category, are as follows:

The target and actual asset allocation of the funds in Hawaiian's qualified defined-benefit plan, by asset category, are as follows:

The Company’s investment policy focuses on achieving maximum returns at a reasonable risk for pension assets over a full market cycle. The Company determines the strategic allocation between equities, fixed income, and real estate based on current funded status and other characteristics of the plans. As the funded status improves, the Company increases the fixed income allocation of the portfolio and decreases the equity allocation. Actual asset allocations are reviewed regularly and periodically rebalanced as appropriate.

Plan assets invested in common commingled trust funds are fair valued using the net asset values of these funds, as allowed using the practical expedient method outlined in the accounting standards. Fair value estimates for real estate are calculated using the present value of expected future cash flows based on independent appraisals, local market conditions and current and projected operating performance.

Plan assets by fund category:

(a) In accordance with Subtopic 820-10, certain investments that are measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

The following table sets forth the status of the qualified defined-benefit pension plans:

The accumulated benefit obligation for the combined qualified defined-benefit pension plans was $2.5 billion and $2.4 billion at December 31, 2025 and 2024. Plan assets increased primarily due to positive market returns on the portfolio.

The amounts recognized in the consolidated balance sheets:

The amounts not yet reflected in net periodic benefit cost and included in AOCL:

Defined benefit plans with projected benefit obligations and accumulated benefit obligations exceeding fair value of plan assets are as follows:

Net pension expense for the qualified defined-benefit plans included the following components:

The Company expects to have approximately $71 million in estimated required contributions for its plans in 2026.

Future benefits expected to be paid over the next ten years under the qualified defined-benefit pension plans from the assets of those plans:

Other qualified plans

Hawaiian also sponsors four defined-benefit postretirement medical and life insurance plans and a separate plan to administer its pilots' disability benefits. Net benefit cost was $17 million in 2025 and wasnot material in 2024. Plan assets are invested in a common collective trust fund, consisting of a balanced profile fund and a conservative profile fund that primarily invest in mutual funds and exchange-traded funds. Asset allocation targets follow Hawaiian's pension plan as outlined above.

At December 31, 2025 and 2024, the combined fair value of plan assets was $51 million and $48 million, respectively. Fair value was estimated using the net asset value per share and is not required to be presented in the fair value hierarchy. The combined PBO was $177 million in 2025 and $159 million in 2024, resulting in net liabilities of $126 million and $111 million, respectively, which are presented as noncurrent liabilities in the consolidated balance sheets. Discount rates used to determine benefit obligations ranged from 5.40% to 5.58% in 2025, and from 5.61% to 5.70% in 2024. Future benefits expected to be paid over the next five years are $11 million, $11 million, $11 million, $12 million, and $13 million, and $76 million for the years 2031 through 2035.

Nonqualified defined-benefit pension plan

Alaska also maintains an unfunded, noncontributory defined-benefit plan for certain elected officers. This plan uses a December 31 measurement date. The assumptions used to determine benefit obligations and the net periodic benefit cost for the nonqualified defined-benefit pension plan are similar to those used to calculate the qualified defined-benefit pension plan. The plan's unfunded status, PBO, and accumulated benefit obligation are immaterial. The net pension expense in prior year and expected future expense is also immaterial.

Nonqualified post-retirement medical benefits

The Company allows certain retirees to continue their medical, dental and vision benefits by paying all or a portion of the active employee plan premium until eligible for Medicare, currently age 65. This results in a subsidy to retirees, because the premiums received by the Company are less than the actual cost of the retirees’ claims. The accumulated post-retirement benefit obligation for this subsidy is unfunded. The accumulated post-retirement benefit obligation was $112 million and $93 million at December 31, 2025 and 2024. The net periodic benefit cost was not material in 2025 or 2024.

Defined-contribution plans

Thetwelve defined-contribution plans are deferred compensation plans under section 401(k) of the Internal Revenue Code. All of these plans require Company contributions. Total expense for the defined-contribution plans was $348 million, $256 million and $203 million in 2025, 2024, and 2023.

The Company also has a noncontributory, unfunded defined-contribution plan for certain elected officers of the Company who are ineligible for the nonqualified defined-benefit pension plan. Amounts recorded as liabilities under the plan are not material to the consolidated balance sheets at December 31, 2025 and 2024.

Alaska pilot long-term disability benefits

Alaska maintains a long-term disability plan for its pilots. The long-term disability plan does not have a service requirement. Therefore, the liability is calculated based on estimated future benefit payments associated with pilots that were assumed to be disabled on a long-term basis as of December 31, 2025 and does not include any assumptions for future disability. The liability includes the discounted expected future benefit payments and medical costs. The total liability was $94 million and $86 million, which was recorded net of a prefunded trust account of $16 million and $13 million, and included in long-term other liabilities in the consolidated balance sheets as of December 31, 2025 and December 31, 2024.

Employee incentive-pay plans

The Company has employee incentive plans that pay employees based on certain financial and operational metrics. These metrics are set and approved annually by the Compensation and Leadership Development Committee of the Board of Directors. The aggregate expense under these plans in 2025, 2024 and 2023 was $268 million, $358 million and $200 million. The incentive plans are summarized below.

•Performance-Based Pay (PBP) is a program that rewards the majority of Alaska, Hawaiian, and Horizon employees. The program is based on various metrics that adjust periodically, including those related to Air Group profitability, safety, acquisition synergies, and guest experience. The program also includes the potential for additional payout if Air Group profitability finishes among the highest in the industry.

•The Operational Performance Rewards Program(OPR) entitles the majority of Alaska, Hawaiian, and Horizon employees to quarterly payouts of up to $450 per person if certain operational and safety objectives are met.

NOTE 9. 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 orders. Option deliveries are excluded until exercise.

In 2025, Alaska executed an amendment to its purchase agreement with Boeing to purchase 53 incremental B737-10 aircraft scheduled for delivery between 2032 and 2035, and exercised 52 B737-10 option aircraft scheduled for delivery between 2028 and 2032. Alaska also added 35 incremental B737-10 option aircraft to its purchase agreement. Additionally, Alaska entered into a supplemental agreement with Boeing to exercise five (5) B787 option aircraft scheduled for delivery between 2031 and 2032.

Boeing has communicated that certain B737 and B787 aircraft are expected to be delivered later than the contracted delivery timing. This includes certain B737-8 aircraft contracted for delivery in 2025 and 2026 that have moved into 2026 and 2027, and certain B787 aircraft contracted for delivery in 2025 that have moved into 2026. B737-10 aircraft contracted for delivery between 2027 and 2035 may be delayed pending certification of the aircraft type. Management expects that other Boeing aircraft deliveries could be delayed beyond the contractual delivery. The table below reflects Boeing's communications.

Details for contractual aircraft delivery commitments:

Capacity purchase agreement 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:

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. The Company 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 the Company’s total liability in the matter. In 2025, 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. Alaska holds an accrual for $36 million in Other accrued liabilities in the consolidated balance sheets, representing the expenses associated with the trademark license agreement incurred through December 31, 2025, and management's current estimate of the amount due to the Virgin Group.

Credit card agreements

Alaska and Hawaiian have agreements with a number of 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 10. 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 11.3 million shares for $570 million in 2025. Under the previous share repurchase program which was completed in 2024, the Company repurchased 5.5 million shares for $312 million in 2024.

CARES Act warrant issuances

As taxpayer protection required under the Payroll Support Program (PSP) 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. 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 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, with 221,812 warrants remaining outstanding at an exercise price of $66.39 as of December 31, 2025.

NOTE 11. ACCUMULATED OTHER COMPREHENSIVE LOSS

A roll forward of the amounts included in accumulated other comprehensive loss is shown below for the twelve months ended December 31, 2025, 2024, and 2023:

NOTE 12. STOCK-BASED COMPENSATION PLANS

The Company has various equity incentive plans under which it may grant stock awards to directors, officers and employees. The Company also has an employee stock purchase plan (ESPP).

The table below summarizes the components of total stock-based compensation:

The Company will recognize $42 million of stock-based compensation for non-vested awards over a weighted-average period of 1.5 years. Unrecognized expense for non-vested stock options was immaterial as of December 31, 2025.

The Company is authorized to issue 31 million shares of common stock under these plans, of which 11 million shares remain available for future grants of either options or stock awards as of December 31, 2025.

Stock options

Stock options to purchase common stock are granted at the fair market value of the stock on the date of grant. The stock options granted have terms of up to ten years. No stock options were granted in 2025 or 2024.

The fair value of each option grant in 2023 was estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions used to estimate the fair value of options granted included an expected volatility of 46%, an expected term of 6 years, a risk-free interest rate of 3.64%, and no expected dividend yield. The weighted-average grant date fair value per share was $16.77 and the estimated fair value of options granted was $1 million.

The expected market price volatility and expected term are based on historical results. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected dividend yield is based on the estimated weighted average dividend yield over the expected term. The expected forfeiture rates are based on historical experience.

The tables below summarize stock option activity for the year ended December 31, 2025:

Cash received from stock option exercises was $23 million for the year ended December 31, 2025, and wasnot material in 2024 or 2023.

Stock awards

Restricted Stock Units (RSUs) are awarded to eligible employees and entitle the grantee to receive shares of common stock when vested. The fair value of the RSUs is based on the stock price on the date of grant. Generally, RSUs vest over a defined period of time as stated in the grant agreement from the date of grant, subject to the employee's continued employment or the date of the employee’s retirement eligibility, and expense is recognized accordingly.

Performance Share Units (PSUs) are awarded to certain executives and entitle the grantee to receive shares of common stock if specific performance goals and market conditions are achieved at the end of a three-year period from the grant date. There are several tranches of PSUs which vest when performance goals or market conditions are met. The fair value of performance-based tranches is based on the stock price on the date of grant. The fair value of market-based tranches is estimated using the Monte Carlo simulation model on the date of grant. Potential payouts range from 0% to 200% of a target level.

The following table summarizes information about outstanding stock awards:

Deferred stock awards

Deferred Stock Units (DSUs) are awarded to members of the Board of Directors as part of their retainers. The underlying common shares are issued upon retirement from the Board, but require no future service period. As a result, the entire intrinsic value of the awards is expensed on the date of grant.

Employee stock purchase plan

The ESPP allows employees to purchase common stock at 85% of the stock price on the first day of the offering period or the specified purchase date, whichever is lower. Employees may contribute up to 10% of their base earnings during the offering period to purchase stock. Employees purchased 2.0 million,2.2 million, and 1.9 million shares in 2025, 2024, and 2023 under the ESPP.

NOTE 13. OPERATING SEGMENT INFORMATION

In 2025, Air Group operated three airlines, Alaska Airlines, Horizon Air, and, through October 29, 2025, Hawaiian Airlines. On that date, Alaska Airlines' and Hawaiian Airlines' operations were combined under Alaska's FAA operating certificate. Alaska has CPAs for regional capacity with Horizon and SkyWest.

Air Group's Chief Operating Decision Maker (CODM) is its President and CEO. 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. As of December 31, 2025, the CODM reviewed financial information forthree reportable operating segments which are described below.

•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 as of December 31, 2025. Air Group's measure of segment profit or loss is pretax profit, which is used by the CODM to evaluate financial results. Reconciliations of the revenue and pretax profit of all reportable segments to Air Group's consolidated revenue and income before income tax are provided through the column titled 'Consolidated & Other.' This column includes activity from operating segments below the quantitative thresholds, special items and other adjustments not assigned to any operating segment, and other immaterial business units, including Air Group parent company activity, Horizon Air operations, McGee Air Services, consolidating entries, and intercompany eliminations. Certain immaterial reclassifications have been made within segment operating expenses between the Alaska Airlines and Regional segments for the years ended December 31, 2024 and 2023. These reclassifications had no impact to consolidated results.

In 2026, the company’s segments disclosure will change to reflect a single reportable segment for Passenger Air Transportation, which includes revenue and expenses associated with the transportation of passengers on Boeing, Airbus, and E175 aircraft. This change is the result of changes in the business, organizational structure, and financial reports that will be provided on a regular basis to the CODM. In the second half of 2025, several integration milestones were completed which resulted in the combination of a significant portion of Alaska and Hawaiian teams, technology, and processes. Additionally, changes were made in the company’s leadership structure to support the integration of the businesses.

(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.

(c) Special items are excluded from the internal reporting provided to the CODM.

(a) Primarily consists of Horizon Air capital expenditures, including non-cash expenditures for debt financing of certain E175 deliveries of $69 million in 2025, $68 million in 2024 and $179 million in 2023.

(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 14. 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. Antidilutive common stock equivalents from employee stock awards and warrants were 1.5 million,1.5 million, and 2.1 million in 2025, 2024, and 2023.

NOTE 15. SPECIAL ITEMS

The Company has classified certain operating and non-operating activity 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, technology, 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. Costs in 2024 were primarily for retroactive pay for Alaska flight attendants pursuant to a tentative agreement and litigation costs related to the Virgin trademark license agreement. Costs in 2023 were primarily for the retirement of Alaska's Airbus and Horizon's Q400 aircraft and contractual changes to Alaska pilots' sick leave benefits.

Net non-operating: The income in 2024 was related to gains on Hawaiian debt extinguishment. The expense in 2023 was primarily for interest expense associated with certain Virgin America A321neo lease agreements which were modified as part of Alaska's fleet transition.

NOTE 16. 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 was 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 during 2025. The measurement period for the acquisition ended September 18, 2025.

Provisional fair values of the assets acquired and the liabilities assumed as of the acquisition date, September 18, 2024, and finalized as of December 31, 2025 were as follows:

Merger-related costs

In 2025, the Company incurred costs directly attributable to the merger activities of$193 million. These costs are presented within Special items - operating within the consolidated statements of operations. Refer to Note 15 for further information on special items. The Company expects to continue to incur merger-related costs in 2026 as integration work continues.

Pro forma impact of the acquisition

The unaudited pro forma financial information presented 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 $420 million assumed to have been incurred on January 1, 2023.