| MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our company and the present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report's introductory cautionary note and the risks mentioned in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2025. This overview summarizes the MD&A, which includes the following sections:
•Second Quarter Review - highlights from the second quarter of 2026 outlining some of the major events that occurred during the period.
•Results of Operations - an in-depth analysis of our financial and operational results for the three and six months ended June 30, 2026.
•Liquidity and Capital Resources - an overview of our financial position, analysis of cash flows, and relevant material cash commitments.
•GAAP to Non-GAAP Reconciliations - reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis.
Dollar amounts in the MD&A are generally rounded to the nearest million. As a result, a manual recalculation of certain figures using these rounded amounts may not agree directly to our actual figures presented in the tables below.
SECOND QUARTER REVIEW
We reported a $214 million loss before income tax under GAAP for the second quarter of 2026, compared to a $238 million profit for the second quarter of 2025. Refer below for a more detailed discussion of the items impacting these results.
Second quarter results were adversely impacted by elevated fuel prices, which increased 85% year-over-year. However, a portion of the incremental fuel expense was offset by strong underlying demand trends that remained resilient throughout the quarter. Revenue increased 9.7% year-over-year, driven by an 8.6% increase in RASM, continued strength in our premium and loyalty products, managed corporate travel, and network optimization initiatives. CASMex increased 6.5%, reflecting higher labor and operating costs associated with continued growth, the absence of a $25 million gain recognized in the prior-year period from the sale of four B737-900 aircraft, and a one-time employee recognition award related to the successful implementation of a single passenger service system.
During the quarter, we achieved a significant integration milestone with the successful implementation of a single passenger service system, while continuing to execute our Alaska Accelerate initiatives. Additionally, we expanded the fleet with the delivery of six B737-8 aircraft at Alaska and two E175 aircraft at Horizon, and launched our first transatlantic routes from Seattle to Rome, London Heathrow, and Reykjavik.
Subsequent to quarter-end, Alaska executed leases for four B737-800 freighter aircraft, to support the continued expansion of our cargo business in Alaska and Hawai'i. The aircraft are expected to enter service in the first half of 2027.
RESULTS OF OPERATIONS
OPERATING STATISTICS
Below are operating statistics we use to measure operating performance. We often refer to unit revenue and adjusted unit costs, which are non-GAAP measures.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||
| Revenue passengers (000) | 15,056 | 15,234 | (1.2)% | 28,388 | 28,393 | -% | |||||||||||||||||||||||||||||
| RPMs (000,000) "traffic" | 20,011 | 20,179 | (0.8)% | 37,311 | 37,436 | (0.3)% | |||||||||||||||||||||||||||||
| ASMs (000,000) "capacity" | 24,306 | 24,058 | 1.0% | 45,876 | 45,277 | 1.3% | |||||||||||||||||||||||||||||
| Load factor | 82.3% | 83.9% | (1.6) pts | 81.3% | 82.7% | (1.4) pts | |||||||||||||||||||||||||||||
| Yield | 18.21¢ | 16.62¢ | 9.6% | 17.59¢ | 16.46¢ | 6.9% | |||||||||||||||||||||||||||||
| PRASM | 14.99¢ | 13.94¢ | 7.5% | 14.31¢ | 13.61¢ | 5.1% | |||||||||||||||||||||||||||||
| RASM | 16.72¢ | 15.39¢ | 8.6% | 16.06¢ | 15.11¢ | 6.3% | |||||||||||||||||||||||||||||
| CASMex | 11.40¢ | 10.70¢ | 6.5% | 11.85¢ | 11.14¢ | 6.4% | |||||||||||||||||||||||||||||
| Fuel cost per gallon | $4.43 | $2.39 | 85.4% | $3.74 | $2.49 | 50.2% | |||||||||||||||||||||||||||||
| Fuel gallons (000,000) | 295 | 293 | 0.7% | 562 | 556 | 1.1% | |||||||||||||||||||||||||||||
| ASMs per gallon | 82.4 | 82.0 | 0.5% | 81.6 | 81.5 | 0.1% | |||||||||||||||||||||||||||||
| Departures (000) | 139.0 | 139.6 | (0.4)% | 264.5 | 263.5 | 0.4% | |||||||||||||||||||||||||||||
| Average full-time equivalent employees (FTEs) | 31,726 | 31,299 | 1.4% | 31,596 | 30,536 | 3.5% | |||||||||||||||||||||||||||||
| Operating fleet | 422 | 409 | 13 a/c | 422 | 409 | 13 a/c | |||||||||||||||||||||||||||||
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2026 TO THREE MONTHS ENDED JUNE 30, 2025
OPERATING REVENUE
Total operating revenue increased $361 million, or 10%. The changes are summarized in the following table:
| Three Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Passenger revenue | $ | 3,644 | $ | 3,355 | 9 | % | |||||||||||
| Loyalty program other revenue | 258 | 210 | 23 | % | |||||||||||||
| Cargo and other revenue | 163 | 139 | 17 | % | |||||||||||||
| Total Operating Revenue | $ | 4,065 | $ | 3,704 | 10 | % | |||||||||||
The table below presents total operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) and the percentage of change of certain operational results for the three months ended June 30, 2026.
| Three Months Ended June 30, 2026 | % Change vs. Prior Year | ||||||||||||||||||||||||||||||||||
| (in millions) | Total Operating Revenue | Passenger Revenue | RPMs | ASMs | Yield | RASM | |||||||||||||||||||||||||||||
| Domestic | $ | 3,704 | 9% | (1)% | 1% | 10% | 9% | ||||||||||||||||||||||||||||
| Latin America | 145 | (21)% | (27)% | (28)% | 9% | 9% | |||||||||||||||||||||||||||||
| Pacific | 170 | 7% | 4% | (2)% | 3% | 16% | |||||||||||||||||||||||||||||
| Atlantic | 46 | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||||
| Total | $ | 4,065 | 9% | (1)% | 1% | 10% | 9% | ||||||||||||||||||||||||||||
Passenger revenue
Passenger revenue increased by $289 million, or 9%, primarily driven by higher yields supported by increased premium revenue, loyalty program award redemption on our airlines, and managed corporate travel. Premium revenue reflected strong demand, the completion of cabin retrofits that added additional first and premium class seats, and additional revenue from newly launched transatlantic service from Seattle to Rome, London Heathrow, and Reykjavik. These increases were partially offset by softer demand in certain leisure markets, including Hawai'i, where significant rainfall earlier in the year impacted spring break and peak summer bookings in the second quarter.
Loyalty program other revenue
Loyalty program other revenue increased by $48 million, or 23%, primarily due to the launch of the Summit Visa Infinite premium credit card and the Atmos Rewards program in August 2025. The launch drove higher commission revenue from bank card and third-party partners, supported by growth in total active members and higher consumer spend. The increase also reflected continued benefits from the extension and expansion of Alaska's co-branded credit card agreement with Bank of America, executed in the first quarter of 2026.
Cargo and other revenue
Cargo and other revenue increased by $24 million, or 17%, primarily driven by improved economics under Alaska's ATSA with Amazon resulting from the amended agreement executed in the first quarter of 2026. Growth in international cargo volumes supported by expanded long-haul service and increased cargo connectivity across the combined network also contributed to the increase.
OPERATING EXPENSES
Total operating expenses increased by $806 million, or 24%. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:
| Three Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Aircraft fuel | $ | 1,305 | $ | 700 | 86 | % | |||||||||||
| Non-fuel operating expenses, excluding special items | 2,886 | 2,671 | 8 | % | |||||||||||||
| Special items - operating | 42 | 56 | (25) | % | |||||||||||||
| Total Operating Expenses | $ | 4,233 | $ | 3,427 | 24 | % | |||||||||||
Aircraft fuel
Aircraft fuel expense consists primarily of raw fuel expense, which generally reflects the "into-plane" price paid at the airport, as well as other taxes and fees. Raw fuel prices are influenced by global crude oil prices and refining costs, which can vary by region in the U.S. We primarily purchase fuel based on U.S. West Coast and Singapore jet fuel prices.
| Three Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Crude oil | $ | 684 | $ | 453 | 51 | % | |||||||||||
| Refining margins | 517 | 164 | 215 | % | |||||||||||||
Other(a) | 104 | 83 | 25 | % | |||||||||||||
| Aircraft fuel | $ | 1,305 | $ | 700 | 86 | % | |||||||||||
| Fuel gallons | 295 | 293 | 1 | % | |||||||||||||
| Fuel cost per gallon | $ | 4.43 | $ | 2.39 | 85 | % | |||||||||||
(a) Includes taxes and other into-plane costs.
Aircraft fuel expense increased $605 million, or 86%, due to higher per gallon fuel costs driven by elevated refining margins and crude oil prices.
Future fuel cost expectations are highly sensitive to disruption in crude oil supplies and refineries, which have been significantly impacted by recent geopolitical events. We expect that fuel costs will remain elevated and volatile until these disruptions are resolved.
Non-fuel expenses
The table below summarizes our operating expense line items, excluding fuel and other special items. Generally, we expect these expenses to increase in line with capacity, fleet size, and growth of the Company's operations. Significant or unusual changes compared to 2025 are more fully described below.
| Three Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Wages and benefits | $ | 1,239 | $ | 1,165 | 6 | % | |||||||||||
| Variable incentive pay | 65 | 61 | 7 | % | |||||||||||||
| Aircraft maintenance | 256 | 240 | 7 | % | |||||||||||||
| Aircraft rent | 64 | 64 | - | % | |||||||||||||
| Landing fees and other rentals | 305 | 278 | 10 | % | |||||||||||||
| Contracted services | 158 | 146 | 8 | % | |||||||||||||
| Selling expenses | 115 | 105 | 10 | % | |||||||||||||
| Depreciation and amortization | 207 | 199 | 4 | % | |||||||||||||
| Food and beverage service | 107 | 97 | 10 | % | |||||||||||||
| Third-party regional carrier expense | 68 | 69 | (1) | % | |||||||||||||
| Other | 302 | 247 | 22 | % | |||||||||||||
| Total non-fuel operating expenses, excluding special items | $ | 2,886 | $ | 2,671 | 8 | % | |||||||||||
Wages and benefits
Wages and benefits increased by $74 million, or 6%. The primary components of Wages and benefits are shown in the following table:
| Three Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Wages | $ | 927 | $ | 888 | 4 | % | |||||||||||
| Payroll taxes | 75 | 61 | 23 | % | |||||||||||||
| Medical and other benefits | 138 | 124 | 11 | % | |||||||||||||
| Defined contribution plans | 92 | 85 | 8 | % | |||||||||||||
| Pension - Defined benefit plans | 7 | 7 | - | % | |||||||||||||
| Total Wages and benefits | $ | 1,239 | $ | 1,165 | 6 | % | |||||||||||
Wages increased $39 million, or 4%, driven by higher wage rates across multiple labor groups. Payroll taxes increased due to higher wages and payroll tax expense associated with a one-time employee recognition award. Medical and other benefits increased $14 million, or 11%, driven by higher claim volume and large value claims.
Landing fees and other rentals
Landing fees and other rentals increased by $27 million, or 10%, primarily driven by higher terminal rents resulting from rate increases and growth across the network. Landing fees increased primarily due to higher landed weights.
Selling expenses
Selling expenses increased by $10 million, or 10%, primarily driven by higher credit card commissions and distribution costs associated with increased bookings and higher fares. The increase was partially offset by improved rates on credit card vendor rebates.
Food and beverage services
Food and beverage services increased by $10 million, or 10%, driven by additional onboard offerings and higher costs for food, food service supplies, and transportation.
Other expense
Other expense increased by $55 million, or 22%, due to a $25 million nonrecurring gain recognized in 2025 from the sale of four B737-900 aircraft, a $20 million one-time employee recognition award, and increased software costs.
Special items - operating
In the second quarter of 2026, we recorded $42 million of operating special items compared to $56 million in the same period in 2025. Refer to Note 10 to the condensed consolidated financial statements for details.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2026 TO SIX MONTHS ENDED JUNE 30, 2025
OPERATING REVENUE
Total operating revenue increased by $524 million, or 8%. The changes are summarized in the following table.
| Six Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Passenger revenue | $ | 6,564 | $ | 6,163 | 7 | % | |||||||||||
Loyalty program other revenue | 485 | 417 | 16 | % | |||||||||||||
| Cargo and other revenue | 316 | 261 | 21 | % | |||||||||||||
| Total Operating Revenue | $ | 7,365 | $ | 6,841 | 8 | % | |||||||||||
The table below presents total operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) and the percentage of change of certain operational results for the six months ended June 30, 2026.
| Six Months Ended June 30, 2026 | % Change vs. Prior Year | ||||||||||||||||||||||||||||||||||
| (in millions) | Total Operating Revenue |
Passenger Revenue |
RPMs |
ASMs |
Yield | RASM | |||||||||||||||||||||||||||||
| Domestic | $ | 6,635 | 7% | -% | 2% | 7% | 6% | ||||||||||||||||||||||||||||
| Latin America | 362 | (16)% | (23)% | (21)% | 8% | 8% | |||||||||||||||||||||||||||||
| Pacific | 322 | 4% | 8% | 4% | (3)% | 3% | |||||||||||||||||||||||||||||
| Atlantic | 46 | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||||
| Total | $ | 7,365 | 7% | -% | 1% | 7% | 6% | ||||||||||||||||||||||||||||
Passenger revenue
Passenger revenue increased by $401 million, or 7%, primarily driven by higher yields supported by increased premium revenue, loyalty program award redemption on our airlines, and managed corporate travel. Premium revenue reflected strong demand, the completion of cabin retrofits that added additional first and premium class seats, and additional revenue from newly launched transatlantic service from Seattle to Rome, London Heathrow, and Reykjavik. These increases were partially offset by softer demand in certain leisure markets, including Puerto Vallarta and Hawai'i, during spring break and peak summer travel in 2026.
Loyalty program other revenue
Loyalty program other revenue increased by $68 million, or 16%, primarily due to the launch of the Summit Visa Infinite premium credit card and the Atmos Rewards program in August 2025. The launch drove higher commission revenue from bank card and third-party partners, supported by growth in total active members and higher consumer spend. In addition, Alaska extended and expanded its co-branded credit card agreement with Bank of America in 2026, which also contributed to the increase.
Cargo and other revenue
Cargo and other revenue increased by $55 million, or 21%, primarily driven by improved economics under Alaska's ATSA with Amazon resulting from the amended agreement executed in 2026. Growth in international cargo volumes supported by expanded long-haul service and increased cargo connectivity across the combined network also contributed to the increase.
OPERATING EXPENSES
Total operating expenses increased by $1.1 billion, or 16%. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:
| Six Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Aircraft fuel | $ | 2,101 | $ | 1,381 | 52 | % | |||||||||||
| Non-fuel operating expenses, excluding special items | 5,634 | 5,233 | 8 | % | |||||||||||||
| Special items - operating | 77 | 147 | (48) | % | |||||||||||||
| Total Operating Expenses | $ | 7,812 | $ | 6,761 | 16 | % | |||||||||||
Aircraft fuel
Aircraft fuel expense increased by $720 million, or 52%, due to higher per gallon fuel costs driven by elevated refining margins and crude oil prices. The elements of the change are illustrated in the table:
| Six Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Crude oil | $ | 1,153 | $ | 905 | 27 | % | |||||||||||
| Refining margins | 771 | 316 | 144 | % | |||||||||||||
Other(a) | 177 | 160 | 11 | % | |||||||||||||
| Aircraft fuel | $ | 2,101 | $ | 1,381 | 52 | % | |||||||||||
| Fuel gallons | 562 | 556 | 1 | % | |||||||||||||
| Fuel cost per gallon | $ | 3.74 | $ | 2.49 | 50 | % | |||||||||||
(a) Includes taxes and other into-plane costs.
Non-fuel expenses
The table below summarizes our operating expense line items, excluding fuel and other special items. Generally, we expect these expenses to increase in line with capacity, fleet size, and growth of the Company's operations. Significant or unusual changes compared to 2025 are discussed in more detail below.
| Six Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Wages and benefits | $ | 2,481 | $ | 2,292 | 8 | % | |||||||||||
| Variable incentive pay | 95 | 123 | (23) | % | |||||||||||||
| Aircraft maintenance | 472 | 460 | 3 | % | |||||||||||||
| Aircraft rent | 125 | 126 | (1) | % | |||||||||||||
| Landing fees and other rentals | 596 | 520 | 15 | % | |||||||||||||
| Contracted services | 309 | 291 | 6 | % | |||||||||||||
| Selling expenses | 214 | 205 | 4 | % | |||||||||||||
| Depreciation and amortization | 411 | 393 | 5 | % | |||||||||||||
| Food and beverage service | 202 | 182 | 11 | % | |||||||||||||
| Third-party regional carrier expense | 124 | 133 | (7) | % | |||||||||||||
| Other | 605 | 508 | 19 | % | |||||||||||||
| Total non-fuel operating expenses, excluding special items | $ | 5,634 | $ | 5,233 | 8 | % | |||||||||||
Wages and benefits
Wages and benefits increased by $189 million, or 8%. The primary components of wages and benefits are shown in the following table:
| Six Months Ended June 30, | |||||||||||||||||
| (in millions) | 2026 | 2025 | % Change | ||||||||||||||
| Wages | $ | 1,856 | $ | 1,735 | 7 | % | |||||||||||
| Payroll taxes | 140 | 126 | 11 | % | |||||||||||||
| Medical and other benefits | 284 | 246 | 15 | % | |||||||||||||
| Defined contribution plans | 187 | 171 | 9 | % | |||||||||||||
| Pension - Defined benefit plans | 14 | 14 | - | % | |||||||||||||
| Total Wages and benefits | $ | 2,481 | $ | 2,292 | 8 | % | |||||||||||
Wages increased by $121 million, or 7%, driven by higher wage rates across multiple labor groups. Payroll taxes increased due to higher wages and payroll tax expense associated with a one-time employee recognition award. Medical and other benefits increased $38 million, or 15%, driven by higher claim volume and large value claims. Defined contribution plans increased $16 million, or 9%, consistent with wage increases.
Variable incentive pay
Variable incentive pay decreased by $28 million, or 23%, primarily driven by a lower expected payout under the Company's Performance-Based Pay program, reflecting lower profitability driven by elevated fuel prices in the first half of 2026. The decrease was also due to a pause in the Company's Operational Performance Rewards program for 2026. These effects were partially offset by a higher wage base in 2026.
Landing fees and other rentals
Landing fees and other rentals increased by $76 million, or 15%, primarily driven by higher terminal rents resulting from rate increases and growth across the network. Landing fees increased primarily due to higher landed weights. Nonrecurring favorable settlements received from certain airports in 2025 also contributed to the year-over-year increase.
Food and beverage service
Food and beverage service increased by $20 million, or 11%, driven by additional onboard offerings and higher costs for food, food service supplies, and transportation.
Other expense
Other expense increased by $97 million, or 19%, due to a $25 million nonrecurring gain recognized in 2025 from the sale of four B737-900 aircraft, a $20 million one-time employee recognition award, and increased software costs.
Special items - operating
In the first six months of 2026, we recorded $77 million of operating special items, compared to $147 million in the same period in 2025. Refer to Note 10 to the consolidated financial statements for details.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2026, we held $3.8 billion in available liquidity, including unrestricted cash, marketable securities, and an undrawn credit facility. In the first six months of 2026, the Company obtained approximately $1.1 billion in new financing and exercised the accordion feature of its revolving credit facility, increasing the aggregate commitment amount from $850 million to $1.1 billion. As of June 30, 2026, we also had approximately $20 billion of unencumbered assets, including 131 aircraft and the unencumbered portion of our loyalty program assets. We expect our current unrestricted cash and marketable securities balance, combined with our available sources of liquidity, to be sufficient to fund our liquidity needs for the next 12 months. We expect to meet our liquidity needs for the foreseeable future using cash flows from our operations, our available sources of liquidity, and future financing arrangements. We discuss our sources and uses of cash in more detail below.
Operating cash flows
Cash provided by ticket sales and from our co-branded credit card agreements are the primary sources of our operating cash flow. Our primary use of operating cash flow is for operating expenses, including payments for employee wages and benefits, aircraft fuel, payments to suppliers for goods and services, payments to lessors and airport authorities for leased aircraft, rents, and landing fees, and interest expense for our debt obligations. Operating cash flow also includes payments to, or refunds from, federal, state, and local taxing authorities.
Cash provided by operating activities was $606 million during the first six months of 2026, compared to $835 million during the first six months of 2025. The $229 million decrease was primarily driven by higher fuel prices throughout the year, partially offset by increased cash collected from advance ticket sales and other favorable working capital changes.
Investing cash flows
Capital expenditures to acquire aircraft, flight equipment, and other property and equipment are the primary use of our investing cash flow. In 2026, we plan to incur approximately $1.4 billion to $1.5 billion in capital expenditures. We discuss our aircraft-related commitments in more detail below.
Cash used in investing activities was $635 million during the first six months of 2026, compared to $747 million during the first six months of 2025. The $112 million decrease in cash used was primarily driven by $218 million in reduced property and equipment expenditures, due to fewer aircraft deliveries in 2026 and the schedule of Alaska's advance deposit payments with Boeing. This activity was partially offset by $32 million in incremental cash outflows related to marketable securities activity and proceeds of $53 million in 2025 from the sale of four B737-900 aircraft.
Financing cash flows
Cash provided by new financing arrangements is the primary source of our financing cash flow. Our primary uses of financing cash flow are payments of our debt and finance lease obligations, as well as share repurchases. Refer to Note 4 to the condensed consolidated financial statements for a detailed discussion of our debt balances, including a schedule outlining future payments.
Cash provided by financing activities was $472 million during the first six months of 2026, compared to cash used in financing activities of $544 million during the first six months of 2025. The $1.0 billion increase was primarily attributable to $1.1 billion of proceeds from new financing agreements and $285 million in reduced share repurchases, partially offset by $169 million in incremental debt repayments.
Indicators of financial condition and liquidity
The table below presents the major indicators of financial condition and liquidity:
| (in millions) | June 30, 2026 | December 31, 2025 | Change | ||||||||||||||
| Unrestricted cash, marketable securities, and unused line of credit | $ | 3,762 | $ | 2,973 | 27% | ||||||||||||
Trailing twelve months' revenue(a) | $ | 14,763 | $ | 14,239 | 4% | ||||||||||||
| Liquidity as a percentage of trailing twelve months' revenue | 25 | % | 21 | % | 4 pts | ||||||||||||
Long-term debt and finance leases, net of current portion | $ | 5,783 | $ | 4,834 | 20% | ||||||||||||
| Shareholders' equity | $ | 3,670 | $ | 4,118 | (11)% | ||||||||||||
(a) Trailing twelve months' revenue as of June 30, 2026 can be reconciled using the most recent four quarters as filed with the SEC.
| Debt-to-capitalization, including leases | |||||||||||||||||
| (in millions) | June 30, 2026 | December 31, 2025 | Change | ||||||||||||||
| Long-term debt and finance leases, net of current portion | $ | 5,783 | $ | 4,834 | 20% | ||||||||||||
| Operating lease liabilities, net of current portion | 1,164 | 1,141 | 2% | ||||||||||||||
| Adjusted debt, net of current portion | $ | 6,947 | $ | 5,975 | 16% | ||||||||||||
| Shareholders' equity | 3,670 | 4,118 | (11)% | ||||||||||||||
| Total Invested Capital | $ | 10,617 | $ | 10,093 | 5% | ||||||||||||
| Debt-to-capitalization ratio | 65 | % | 59 | % | 6 pts | ||||||||||||
Material cash commitments
We have various contractual obligations that require material future outlays of cash. These obligations include the purchase of aircraft and other flight equipment, payments for Alaska's CPA with SkyWest, debt service payments, lease payments for aircraft and other property and equipment, costs for aircraft and engine maintenance, sponsorship and license agreements, and other miscellaneous agreements for services associated with operating and marketing our airlines. We also anticipate we may have material cash outlays associated with new technologies for the future of the business. Currently, Alaska has agreements to purchase sustainable aviation fuel (SAF) to be delivered in the coming years. These agreements are dependent on suppliers' ability to obtain all required governmental and regulatory approvals, achieve commercial operation, and produce sufficient quantities of SAF. We expect to satisfy these obligations using cash flows from our operations, our available sources of liquidity, and future financing arrangements.
Within the notes accompanying our condensed consolidated financial statements, refer to Note 4 for discussion of scheduled debt obligations and Note 6 for discussion of aircraft purchase commitments and CPA obligations.
As of June 30, 2026, Alaska had firm orders to purchase 168 B737 aircraft with deliveries expected between 2027 and 2035, and firm orders to purchase 12 B787 aircraft with deliveries expected between 2026 and 2032. Alaska also had rights for 71 additional B737 aircraft through 2035. Horizon had a firm order to purchase one E175 aircraft with delivery in 2026. Subsequent to the quarter, Alaska executed lease agreements for four B737-800 freighters, with deliveries in 2026.
Boeing continues to experience aircraft delivery delays attributable to supplier availability, production challenges, and regulatory approval processes. These factors represent known uncertainties that may continue to affect the timing of aircraft deliveries. The table below reflects Boeing's most recent communications and management's current estimates.
| Actual Fleet | Anticipated Fleet Activity | ||||||||||||||||||||||||||||||||||||||||
| Aircraft | June 30, 2026 | 2026 Changes | Dec 31, 2026 | 2027 Changes | Dec 31, 2027 | 2028 Changes | Dec 31, 2028 | ||||||||||||||||||||||||||||||||||
| Mainline Fleet: | |||||||||||||||||||||||||||||||||||||||||
| B737-700 Freighters | 3 | - | 3 | - | 3 | - | 3 | ||||||||||||||||||||||||||||||||||
| B737-800 Freighters | 2 | 4 | 6 | - | 6 | - | 6 | ||||||||||||||||||||||||||||||||||
A330-300 Freighters(a) | 10 | 1 | 11 | - | 11 | - | 11 | ||||||||||||||||||||||||||||||||||
| A321-200neo | 18 | - | 18 | - | 18 | - | 18 | ||||||||||||||||||||||||||||||||||
| A330-200 | 24 | - | 24 | - | 24 | (4) | 20 | ||||||||||||||||||||||||||||||||||
B717-200(b) | 19 | - | 19 | - | 19 | - | 19 | ||||||||||||||||||||||||||||||||||
| B737-700 | 11 | - | 11 | - | 11 | - | 11 | ||||||||||||||||||||||||||||||||||
| B737-800 | 59 | - | 59 | - | 59 | - | 59 | ||||||||||||||||||||||||||||||||||
| B737-900ER | 79 | - | 79 | - | 79 | - | 79 | ||||||||||||||||||||||||||||||||||
| B737-8 | 20 | - | 20 | 5 | 25 | - | 25 | ||||||||||||||||||||||||||||||||||
| B737-9 | 80 | - | 80 | - | 80 | - | 80 | ||||||||||||||||||||||||||||||||||
| B737-10 | - | - | - | 25 | 25 | 25 | 50 | ||||||||||||||||||||||||||||||||||
| B787-9 | 5 | 1 | 6 | 1 | 7 | - | 7 | ||||||||||||||||||||||||||||||||||
| B787-10 | - | - | - | - | - | 4 | 4 | ||||||||||||||||||||||||||||||||||
| Total Mainline Fleet | 330 | 6 | 336 | 31 | 367 | 25 | 392 | ||||||||||||||||||||||||||||||||||
| Regional Fleet: | |||||||||||||||||||||||||||||||||||||||||
| E175 operated by Horizon | 49 | 1 | 50 | - | 50 | - | 50 | ||||||||||||||||||||||||||||||||||
| E175 operated by third party | 43 | - | 43 | - | 43 | - | 43 | ||||||||||||||||||||||||||||||||||
| Total Regional Fleet | 92 | 1 | 93 | - | 93 | - | 93 | ||||||||||||||||||||||||||||||||||
| Total Air Group Fleet | 422 | 7 | 429 | 31 | 460 | 25 | 485 | ||||||||||||||||||||||||||||||||||
(a) A330-300 freighter aircraft utilized under the ATSA with Amazon.
(b) Retirement of the B717-200 aircraft is expected to begin in 2028 as part of the planned transition of Neighbor Island operations to Boeing 737-800 aircraft.
GAAP TO NON-GAAP RECONCILIATIONS
Reconciliations of certain reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis are provided below. Consideration of these non-GAAP financial measures may be important to users of the financial statements. Although these non-GAAP figures are presented below, they should not be considered a substitute for or superior to GAAP figures.
•Pretax income (loss), net income (loss), and earnings (loss) per share are presented on an adjusted basis. Adjustments are made for special charges that are unusual or nonrecurring in nature, as well as for gains and losses on foreign debt, as these adjustments enhance comparability of our core operations to prior periods and to the rest of the airline industry.
•CASMex is a key measure used by management and the Air Group Board of Directors to evaluate cost performance. It is also commonly used by industry analysts to compare airlines. Because U.S. carriers are generally similarly affected by changes in jet fuel prices over the long run, aircraft fuel costs are excluded to focus on more controllable, company-specific cost drivers. Costs related to freighter aircraft operations, including those incurred under the ATSA with Amazon, are excluded to enhance comparability with carriers that do not operate freighter aircraft. Performance-Based Pay (PBP) expense is excluded as it is dependent on the Company's achievement of annually established financial and operational goals. Certain special charges are excluded as they are unusual or nonrecurring in nature.
•Adjusted capital expenditures includes certain amounts that are not classified as investing cash outflows within our consolidated statements of cash flows, but are viewed by management and other stakeholders as significant long-term investments in the business. Management believes these adjustments provide a more complete view of capital expenditures during the year.
GAAP TO NON-GAAP RECONCILIATIONS
Pretax Income (Loss), Net Income (Loss), and Earnings (Loss) per Share, adjusted
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | Loss Before Income Tax | Income Tax | Net Loss | Per Share | Income Before Income Tax | Income Tax | Net Income | Per Share | |||||||||||||||||||||||||||||||||||||||
| GAAP | $ | (214) | $ | (138) | $ | (76) | $ | (0.68) | $ | 238 | $ | 66 | $ | 172 | $ | 1.42 | |||||||||||||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||||||||||||||||||||||||||
| Losses (gains) on foreign debt and other | (4) | 1 | |||||||||||||||||||||||||||||||||||||||||||||
| Special items - operating | 42 | 56 | |||||||||||||||||||||||||||||||||||||||||||||
| Total adjustments | $ | 38 | $ | 64 | $ | (26) | $ | (0.24) | $ | 57 | $ | 14 | $ | 43 | $ | 0.36 | |||||||||||||||||||||||||||||||
| Adjusted | $ | (176) | $ | (74) | $ | (102) | $ | (0.92) | $ | 295 | $ | 80 | $ | 215 | $ | 1.78 | |||||||||||||||||||||||||||||||
| GAAP pretax margin | (5.3) | % | 6.4 | % | |||||||||||||||||||||||||||||||||||||||||||
| Adjusted pretax margin | (4.3) | % | 8.0 | % | |||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | Loss Before Income Tax | Income Tax | Net Loss | Per Share | Income Before Income Tax | Income Tax | Net Income | Per Share | |||||||||||||||||||||||||||||||||||||||
| GAAP | $ | (531) | $ | (262) | $ | (269) | $ | (2.39) | $ | 5 | $ | (1) | $ | 6 | $ | 0.05 | |||||||||||||||||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||||||||||||||||||||||||||
| Losses (gains) on foreign debt and other | (7) | 3 | |||||||||||||||||||||||||||||||||||||||||||||
| Special items - operating | 77 | 147 | |||||||||||||||||||||||||||||||||||||||||||||
| Total adjustments | $ | 70 | $ | 95 | $ | (25) | $ | (0.22) | $ | 150 | $ | 36 | $ | 114 | $ | 0.92 | |||||||||||||||||||||||||||||||
| Adjusted | $ | (461) | $ | (167) | $ | (294) | $ | (2.61) | $ | 155 | $ | 35 | $ | 120 | $ | 0.97 | |||||||||||||||||||||||||||||||
| GAAP pretax margin | (7.2) | % | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||||
| Adjusted pretax margin | (6.3) | % | 2.3 | % | |||||||||||||||||||||||||||||||||||||||||||
CASMex Reconciliation
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in millions, except unit metrics) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Total operating expenses | $ | 4,233 | $ | 3,427 | $ | 7,812 | $ | 6,761 | |||||||||||||||
| Less the following components: | |||||||||||||||||||||||
| Aircraft fuel | 1,305 | 700 | 2,101 | 1,381 | |||||||||||||||||||
| Freighter costs | 52 | 48 | 104 | 89 | |||||||||||||||||||
| Performance-based pay | 64 | 49 | 92 | 101 | |||||||||||||||||||
| Special items - operating | 42 | 56 | 77 | 147 | |||||||||||||||||||
| Adjusted operating expenses | $ | 2,770 | $ | 2,574 | $ | 5,438 | $ | 5,043 | |||||||||||||||
| ASMs | 24,306 | 24,058 | 45,876 | 45,277 | |||||||||||||||||||
| CASMex | 11.40 | ¢ | 10.70 | ¢ | 11.85 | ¢ | 11.14 | ¢ | |||||||||||||||
Adjusted Capital Expenditures Reconciliation
| Six Months Ended June 30, | |||||||||||
| (in millions) | 2026 | 2025 | |||||||||
| Aircraft, aircraft purchase deposits and other flight equipment | $ | 415 | $ | 613 | |||||||
| Other property and equipment | 108 | 128 | |||||||||
| Capital expenditures | 523 | 741 | |||||||||
| Adjusted for: | |||||||||||
| Property and equipment acquired through the issuance of debt | 48 | 69 | |||||||||
| Proceeds from sales of aircraft and other equipment | (7) | (62) | |||||||||
| Adjusted capital expenditures | $ | 564 | $ | 748 | |||||||
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to our critical accounting estimates during the three and six months ended June 30, 2026. For information regarding our critical accounting estimates, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2025.
GLOSSARY OF TERMS
Adjusted debt - long-term debt, plus operating and finance lease liabilities.
Adjusted net debt - long-term debt, plus operating and finance lease liabilities, less unrestricted cash and marketable securities.
ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown.
CASMex - operating costs excluding fuel, freighter costs, Performance-Based Pay (PBP), and special items per ASM, or "unit cost."
Debt-to-capitalization ratio - represents adjusted debt, net of current portion, divided by total equity plus adjusted debt, net of current portion.
Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding.
Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised.
Freighter Costs - operating expenses directly attributable to the operation of B737 freighter aircraft and A330-300 freighter aircraft exclusively performing cargo missions.
Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with revenue passengers.
PRASM - passenger revenue per ASM, or "passenger unit revenue."
RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, loyalty program revenue, and other ancillary revenue; represents the average total revenue for flying one seat one mile.
RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with revenue passengers; one passenger traveling one mile is one RPM.
Yield - passenger revenue per RPM; represents the average passenger revenue for flying one passenger one mile.