Request-2009 ALK Annual Report and 2010 Proxy Statement

8/6/2019 Request-2009 ALK Annual Report and 2010 Proxy Statement

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2 0 0 9 A N N U A L R E P O R T


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On the cover: Alaska Air Group is proud of its long affiliation with the New York StockExchange. On November 10, 2009, the entrance to the exchange displayed ourcompanys banner.


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Alaska Air Group2009 Annual Report


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To Our Shareholders

We recently had the privilege of ringing the opening bell at the New York Stock Exchange,marking the beginning of a new trading day. The excitement and optimism was palpable.

I am pleased to reportthat in 2009, Alaska AirGroup rang some bells ofits own, fueling optimismand confidence about ourcompanys future at atime when the airlineindustry continues tostruggle.

Heres a brief rundown ofsome of our accomplish-ments over the past year:

Alaska Air Groups2009 financial resultswere among the bestin the industry, mark-ing our sixth consec-utive year ofprofitability andextending our profit-ability to 31 of thelast 37 years.

Alaska Air Group CEO Bill Ayer, Alaska Airlines President Brad Tilden and Horizon Air

President and CEO Jeff Pinneo, along with several other company executives, rang the

New York Stock Exchange opening bell, signaling the commencement of trading on

Tuesday, November 10, 2009. The event marked a partnership with the exchange that

spans more than 25 years. Alaska Air Group executives from left to right: Steve Jarvis,

Shannon Alberts, Kelley Dobbs, Jeff Pinneo, NYSE Sr. VP Corporate Communications

Richard Adamonis (partially hidden), Brad Tilden, Mark Eliasen, Bill Ayer, Jay Schaefer,

Glenn Johnson, Brandon Pedersen, Keith Loveless, Ben Minicucci and Caroline Boren.

Alaska was ranked highest in customersatisfaction among traditional network car-riers in North America by J.D. Power andAssociates for the second year in a row.This recognition, along with the results ofinternal customer surveys, is testament tothe warm, engaging experience provided byAlaska and Horizon employees.

Our Mileage Plan won the Freddie Award for Program of the Year for the fifth time inseven years. Alaskas Mileage Plan makes it possible for members to fly almostanywhere in the world through alliances with our many airline partners.

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Alaska Airlines reportedexcellent on-time performance,finishing the year with nearly83 percent of flights arriving ontime. Alaska led the 10 largest

domestic carriers in eight out of12 months last year, whichrepresents a markedimprovement over a year ago. At

just over 86 percent, Horizonsperformance would have takenthe top spot if they had

participated in the official tally.

Alaska Airlines On-Time Performance

2005 2006 2007 20092008

65

75

70

80

85

69.7

73.372.4

78.3

82.9

Percentage

offilights

arriving

ontime

All in all, 2009 was an excellent year, considering the economic challenges. Lower oil prices

provided welcome relief, while service to new cities and other changes to our network helpedincrease load factors. As a result, our bottom line reflected continued progress on margins

and returns for our shareholders.

Strategic Plan

Not long ago, we took stock of the goals we set back in 2003, when we first embarked onwhat we dubbed our 2010 Plan. We were struck by a couple of things. One is that wevebeen very consistent with the direction weve taken the company over the past seven years.The other is that some targets that seemed like a real stretch back then have become areality today, providing us with a powerful lesson in the importance of maintaining disciplinearound a few really important goals.

Following is an update on our progress:

Safety A safe operation is the foundation of our business. Alaska Air Group hasbeen widely recognized for having state-of-the-art safety and compliance practices inall areas of our operation.

People Getting everyone aligned around the same goals is powerful. During 2009,we made significant progress toward having all employees at both airlines in acommon gain-sharing plan that aligns our efforts around the four big drivers of ourbusiness: safety, customer satisfaction, costs and profitability.

Alaska guarantees bags will be at the

carousel within 25 minutes or customers

receive $25 or 2,500 Mileage Plan miles.

Customers At Alaska and Horizon, we areobsessed with providing our customers thebest value for their dollar. We are pleased tooffer an award-winning Mileage Plan, a first-class cabin on Alaska Airlines, complimentary

Pacific Northwest wines and micro-brews onHorizon Air, and a baggage delivery guaranteethat is unique in the industry all for pricesthat compare favorably with those of ourcompetitors.

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Fleet A single fleet type is a competitive advantage, allowing us to reduce pilot andmaintenance expense. Alaska now has an all-Boeing 737 fleet, including 82 NextGeneration aircraft, and Horizon has simplified its fleet to two types. Alaskas737-700s, -800s and -900s, as well as Horizons Q400s are the most fuel-efficientin their classes. Horizon will become an all-Bombardier Q400 operator when market

conditions for our remaining CRJ aircraft improve.

Route Network Evenas we decreasedcapacity on someroutes in response tofalling demand, weestablished a presencein new markets with thepotential for future

growth, adding 13 newcity pairs at Alaska and

Horizon during 2009.For example, Hawaii which we began servingin 2007 now makesup about 13 percent ofAlaskas available seatmiles.

New Alaska Routes 2000-2010

Anchorage

Seattle

Tucson

Los Angeles

Cancun

Fairbanks

Prudhoe Bay

Washington D.C.

Boston

Portland

Newark

Long Beach

Miami

Guadalajara

Loreto

Mexico City

Barrow

Adak

Lihue

Kona

Minneapolis/St. Paul

Atlanta

Houston

LasVegas

Oakland

DenverChicago

San Francisco

HonoluluMaui

OrlandoAustin

San JoseSacramento

Dallas

Technology Much has happened since Alaska pioneered selling tickets over theInternet and enabling customers to check in via the Web. Were continuing ourtradition of technological innovation with the recent rollout of electronic boarding

passes that can be displayed and scanned on a smart-phone. And, speaking ofsmart-phones, we have our own app, making it more convenient for customersto check in and manage their trips from a mobile device. In addition, Alaska isworking with the FAA to expand the use of next-generation flight guidanceprocedures that reduce flight times, air traffic congestion and fuel burn, therebydecreasing aircraft emissions and noise. Horizon is also expanding its use ofstate-of-the-art systems for greater navigational precision and operationalreliability.

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Financial Performance Were still short of delivering a 10 percent return on investedcapital, but the goal is firmly in view and were making steady progress. We havemaintained excess cash as a hedge against economic uncertainty, and we plan toput some of that to work over the next couple of years. Potential uses includerepaying debt, paying cash for replacement aircraft, buying back shares and

contributing to our defined benefit plans.

Alaska Air Group Net Profit

*(5.9) mil. after accounting change.See reconciliation of GAAP to adjusted amounts on pages 32 and 44of Alaska Air Groups 2009 Annual Report on Form 10-K.

Generally Accepted Accounting Principles (GAAP)

Adjusted for unusual items

2001 2002 2003 2004 2005 2006 2007 20092008

-150

-100

-50

0

50

100

150

-43.4

-88.3

-67.2-67.5

13.5

-30.8-15.3

5.2

84.5*

55.0

-54.5

135.8124.3

91.6

121.6

88.7

4.4

-135.9

($

millions)

Although we havent accomplishedeverything we mapped out in 2003,weve made good progress and learnedsome valuable lessons along the way.We have become much better atfocusing our efforts on the mostimportant goals and quickly making thechanges needed to achieve them, while

not getting distracted by things we cantcontrol.

Current Initiatives

As in 2009, our 2010 key initiative is to increase revenue. We are taking a three-pronged

approach that focuses on increasing non-ticket (or ancillary) revenues, improving the

merchandising of our product and engaging front-line employees in the marketing process.We are redesigning thealaskaair.com Web site to moreprominently feature hotel, car rentaland vacation offerings, therebyproviding customers with convenient,one-stop shopping. In addition, weplan to equip our 737 fleet with Wi-Fiby the end of 2010.

Chart on right: In 2009, the economic downturn

resulted in lower demand, placing downward

pressure on average passenger revenue. The

decline was largely offset by new revenue from the

first bag fee that we initiated in July 2009.

$75

$100

$175

$150

$50

Average Revenue Per Passenger

2001 2009200820072002 2003 2004 2005 2006

*Includes Frontier Jet Express flying under a capacity purchase agreement.Unit revenues and unit costs are lower for this flying than for the rest ofHorizons network.

$125

Horizon Air

Alaska Airlines

81

118

81

118

90

122

82

124

84*

130

92*

143

94*

145

157

98

157

95

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In the 32 years since industryderegulation, one thing has becomeabundantly clear: customers want lowfares. That means in order to offertravelers a great value and generate

long-term returns for investors, wemust have low costs. As we work toimprove the top line, we are alsotargeting unit cost reductions at bothairlines, with specific efforts aimed atimproving productivity and reducingoverhead costs.

Load Factor

Horizon Air

Alaska Airlines

2001 2002 2003 2004 2005 2006 2007 20092008

50

60

55

65

75

70

80

62.8

68.4

62.4

68.1

63.9

70.0

69.3

72.972.8

75.9

74.1

76.6

73.4

76.2

72.9

77.3

73.1

79.3

Percentofseatsf

illed

Load factors held steady at Horizon Air and improved at

Alaska Airlines as a result of reduced and redeployed capacity

and revenue management initiatives.

***

Were optimistic about our future.

Our long-term strategy is based on simple principles that dont change over time. And ourdecisions will continue to be guided by the overarching goals of providing a preferred productfor customers, good careers for employees, and a healthy return for you, our shareholders.

Because our company is smaller and more nimble, we reacted more quickly to the economic

realities of the recent downturn. The changes we made, combined with the dedication,discipline and hard work of so many at Alaska and Horizon, have put us in position to benefitas the economy recovers and we prepare to ring the bell on a new day.

Sincerely,

William S. AyerChairman, President and Chief Executive OfficerAlaska Air GroupApril 1, 2010

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Notice of Annual Meetingof Shareholders

andProxy Statement

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

P.O. Box 68947Seattle, Washington 98168

To our Stockholders:

The Annual Meeting of Stockholders of Alaska AirGroup, Inc. (the Annual Meeting) will be held atthe Museum of Flight in Seattle, Washington at 2p.m. on Tuesday, May 18, 2010, for thefollowing purposes:

1. To elect to the Board of Directors the ninenominees named in this proxy statement,each for a one-year term;

2. To ratify the appointment of KPMG LLP asthe Companys independent auditor;

3. To seek an advisory vote in regards to thecompensation of the Companys namedexecutive officers;

4. To seek approval of the Companys 2010Employee Stock Purchase Plan;

5. To consider and vote upon thestockholder proposal described in theaccompanying proxy statement; and

6. To transact such other business as mayproperly come before the meeting or anyadjournment thereof.

Stockholders owning Company common stock atthe close of business on March 19, 2010 areentitled to receive this notice and to vote at themeeting. All stockholders are requested to bepresent in person or by proxy. For theconvenience of stockholders who do not expectto attend the meeting in person and wish to havetheir shares voted, a form of proxy and anenvelope are enclosed. Stockholders may alsovote by internet or telephone. Any stockholderwho later finds that he or she can be present atthe meeting, or for any reason desires to do so,may revoke his or her proxy at any time before itis voted.

We have elected to furnish 2010 proxy materials

via the internet to certain stockholders, inaccordance with Securities and Exchange

Commission provisions. On or about April 1,2010, we mailed a Notice of Internet Availabilityof Proxy Materials (the Notice) includinginstructions for accessing Alaska Air Groups2010 proxy statement and 2009 annual reportto stockholders, and for voting online or bytelephone, to stockholders who did not receive afull set of proxy materials. Employees holdingtheir shares through the Companys 401(k) plan,managed by Fidelity Management TrustCompany, were mailed a full set of proxymaterials this year. The Notice also includesinstructions on how to receive a paper copy ofthese materials by mail. We believe this form ofdelivery will provide timely notice to ourstockholders, while conserving natural resourcesand reducing costs of printing and delivery.

Voting by the internet or telephone is fast andconvenient and your vote is immediatelyconfirmed and tabulated. By using the internet ortelephone to vote, you help Alaska Air Groupreduce postage and proxy tabulation costs.

We appreciate your participation, since a majorityof the outstanding common stock entitled to voteat the meeting must be represented either inperson or by proxy to constitute a quorum inorder to conduct business.

By Order of the Board of Directors,

Keith LovelessCorporate Secretary and General Counsel

April 1, 2010

IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF PROXY MATERIALS FORTHE STOCKHOLDER MEETING TO BE HELD ON MAY 18, 2010.

Stockholders may access, view and download the 2010 proxy statement and our 2009 Annual Reportover the Internet on our website located at www.edocumentview.com/alk

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ALASKA AIR GROUP, INC.NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT

TABLE OF CONTENTS

ANNUAL MEETING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1QUESTIONS AND ANSWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

BOARD PROPOSAL 1: ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

BOARD PROPOSAL 2: 2010 INDEPENDENT AUDITOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

BOARD PROPOSAL 3: COMPENSATION OF NAMED EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . 12

BOARD PROPOSAL 4: EMPLOYEE STOCK PURCHASE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

CODE OF CONDUCT AND ETHICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . 31

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . 34

COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

COMPENSATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION . . . . . . . . . . . . . . . . . . . . . 45

SUMMARY COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

GRANTS OF PLAN-BASED AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

OPTION EXERCISES AND STOCK VESTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

PENSION BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

NONQUALIFIED DEFERRED COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

POTENTIAL PAYMENTS UPON CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

STOCKHOLDER PROPOSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

REDUCE DUPLICATIVE MAILINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

SUBMISSION OF PROPOSALS FOR NEXT ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

EXHIBIT AALASKA AIR GROUP, INC. 2010 EMPLOYEE STOCK PURCHASE PLAN . . . . . . . . . . . . . . A-1

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ANNUAL MEETING INFORMATION

The Board of Directors of Alaska Air Group,Inc. (AAG or the Company) is solicitingproxies for the 2010 Annual Meeting ofStockholders. This proxy statement contains

important information for you to considerwhen deciding how to vote on the mattersbrought before the meeting. Please read itcarefully.

The Board set March 19, 2010 as therecord date for the meeting. Stockholderswho owned Company common stock on thatdate are entitled to vote at the meeting, witheach share entitled to one vote. There were35,761,624 shares of Company commonstock outstanding on the record date.

Annual Meeting materials, which include thisproxy statement, a proxy card or votinginstruction form, and our 2009 AnnualReport, were delivered to our stockholderson or about April 1, 2010. Certainstockholders were mailed a Notice ofInternet Availability of Proxy Materials on thesame date. The Companys Form 10-K for

the year ended December 31, 2009 isincluded in the 2009 Annual Report. It wasfiled with the Securities and Exchange

Commission (SEC) on February 19, 2010.

Internet Availability of Annual Meeting

Materials

Under SEC rules, Alaska Air Group has

elected to make our proxy materialsavailable over the internet rather than mailhard copies to stockholders of record and toa segment of employee participants in theCompanys 401(k) Plans. On or aboutApril 1, 2010, we mailed to thesestockholders a Notice of Internet Availabilityof Proxy Materials (the Notice) directingstockholders to a website where they canaccess our 2010 proxy statement and 2009annual report to stockholders, and to viewinstructions on how to vote via the internet

or by telephone. If you received the Noticeonly and would like to receive a paper copyof the proxy materials, please follow theinstructions printed on the Notice to requesta paper copy be mailed to you.

All stockholders may access, view anddownload this proxy statement and our

2009 Annual Report over the internet atwww.edocumentview.com/alk. Informationon our website does not constitute part ofthis proxy statement.

QUESTIONS AND ANSWERS

Why am I receiving this annual meeting

information and proxy?

You are receiving this annual meetinginformation and proxy from us because youowned shares of common stock in Alaska AirGroup as of the record date for the Annual

Meeting. This proxy statement describes

issues on which you may vote and providesyou with other important information so thatyou can make informed decisions.

You may own shares of Alaska Air Groupcommon stock in several different ways. Ifyour stock is represented by one or more

stock certificates registered in your name oryou have a Direct Registration Service (DRS)advice evidencing shares held in book entryform, you have a stockholder account withour transfer agent, Computershare TrustCompany, N.A. (Computershare), which

makes you a stockholder of record. If youhold your shares in a brokerage, trust or

similar account, you are the beneficial ownerbut not the stockholder of record of thoseshares. Employees of the Company whohold shares of stock in one or more of theCompanys 401(k) retirement plans arebeneficial owners.

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What am I voting on?

You are being asked to vote on the electionof the nine director nominees named in thisproxy statement, to ratify the selection ofKPMG LLP as independent auditor, to

provide an advisory vote in regards to thecompensation of the Companys namedexecutive officers, to approve theCompanys 2010 Employee Stock PurchasePlan, and, if properly presented, to vote onone stockholder proposal. When you signand mail the proxy card or submit your proxy

by telephone or the internet, you appointeach of William S. Ayer and Keith Loveless,or their respective substitutes or nominees,as your representatives at the meeting.(When we refer to the named proxies, we

are referring to Messrs. Ayer and Loveless.)This way, your shares will be voted even ifyou cannot attend the meeting.

How does the Board of Directors

recommend I vote on each of the

proposals?

FOR each of the Boards nine directornominees named in this proxystatement;

FOR the ratification of the appointmentof KPMG LLP as the Companysindependent auditors;

FOR the ratification of thecompensation of the Companys namedexecutive officers;

FOR the Companys 2010 EmployeeStock Purchase Plan (ESPP); and

AGAINST the stockholder proposal.

How do I vote my shares?Stockholders of record can vote by using theproxy card or by telephone or by the internet.Beneficial owners whose stock is held:

in a brokerage account can vote byusing the voting instruction form

provided by the broker or by telephoneor the internet.

by a bank, and have the power to voteor to direct the voting of the shares, canvote using the proxy or the voting

information form provided by the bankor, if made available by the bank, bytelephone or the internet.

in trust under an arrangement thatprovides the beneficial owner with thepower to vote or to direct the voting ofthe shares can vote in accordance withthe provisions of such arrangement.

in trust in one of the Companys 401(k)

retirement plans can vote using thevoting instruction form provided by the

trustee.

Beneficial owners, other than persons who

beneficially own shares held in trust in oneof the Companys 401(k) retirement plans,can vote at the meeting provided that he orshe obtains a legal proxy from the personor entity holding the stock for him or her(typically a broker, bank, or trustee). Abeneficial owner can obtain a legal proxy bymaking a request to the broker, bank, ortrustee. Under a legal proxy, the bank,

broker, or trustee confers all of its rights asa record holder (which may in turn havebeen passed on to it by the ultimate recordholder) to grant proxies or to vote at themeeting.

Listed below are the various means internet, phone and mail you can use tovote your shares without attending theAnnual Meeting.

You can vote on the internet.

Stockholders of record and beneficialowners of the Companys common stockcan vote via the internet regardless of

whether they receive their annual meetingmaterials through the mail or via theinternet. Instructions for doing so are

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provided along with your proxy card or votinginstruction form. If you vote on the internet,please do not mail in your proxy card (unlessyou intend for it to revoke your prior internetvote). Your internet vote will authorize the

named proxies to vote your shares in thesame manner as if you marked, signed andreturned your proxy card.

You can vote by phone.

Stockholders of record and beneficial ownersof the Companys common stock can vote byphone. Instructions for voting by phone areprovided along with your proxy card or votinginstruction form. If you vote by telephone,please do not mail in your proxy card (unless

you intend for it to revoke your priortelephone vote). Your phone vote willauthorize the named proxies to vote yourshares in the same manner as if you marked,signed and returned your proxy card.

You can vote by mail.

Simply sign and date the proxy card or votinginstruction form received with this proxystatement and mail it in the enclosedprepaid and addressed envelope. If youmark your choices on the card or voting

instruction form, your shares will be votedas you instruct.

The availability of telephone and internet

voting.

Internet and telephone voting facilities forstockholders of record and beneficialholders will be available 24 hours a day, andwill close at 11:59 p.m. Eastern Time onMonday, May 17, 2010. To allow sufficienttime for voting by the trustee, voting

instructions for 401(k) plan shares must bereceived no later than 11:59 p.m. EasternTime on Thursday, May 13, 2010.

How will my shares be voted if I return a

blank proxy or voting instruction form?

If you are a stockholder of record, and yousign and return a proxy card without givingspecific voting instructions, your shares will

be voted in accordance with therecommendations of the Board of Directorsshown above and as the named proxies maydetermine in their discretion with respect toany other matters properly presented for avote before the meeting.

With the exception of the proposal to ratifythe appointment of KPMG as the Companysindependent auditors, if you are a beneficial

owner and do not provide your broker, bankor other trustee with voting instructions, your

shares will not be voted.

What other business may be properly

brought before the meeting, and what

discretionary authority is granted?

Under the Companys Bylaws, as adoptedSeptember 10, 2009, a stockholder maybring business before the meeting forpublication in the Companys 2010 proxystatement only if the stockholder gavewritten notice to the Company on or before

November 30, 2009, and complied with theother requirements included in Article II ofthe Companys Bylaws. The only suchbusiness as to which the Company receivedproper advance notice from a stockholder isa stockholder proposal described in thisproxy statement and included on theCompanys proxy card. If proxies arereturned with no instructions indicated, thenamed proxies can vote the sharesrepresented by the proxies in their best

judgment.

The Company has not received valid noticethat any business other than that describedor referenced in this proxy statement will bebrought before the meeting. As to any othermatters that may properly come before themeeting and are not on the proxy card, the

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proxy grants to Messrs. Ayer and Lovelessthe authority to vote the shares for whichthey hold proxies in their discretion.

What does it mean if I receive more than

one proxy card, voting instruction form or

email notification from the Company?

It means that you have more than one

account for your Alaska Air Group shares.Please complete and submit all proxies toensure that all your shares are voted or voteby internet or telephone using each of theidentification numbers.

What if I change my mind after I submit my

proxy?

You may revoke your proxy and change yourvote by delivering a later-dated proxy or,except for persons who beneficially ownshares held in trust in one of the Companys401(k) retirement plans, by voting at the

meeting. The later-dated proxy may bedelivered by telephone, internet or mail andneed not be delivered by the same meansused in delivering the to-be-revoked proxy.Except for persons beneficially holdingshares in one of the Companys 401(k)

retirement plans, you may do this at a laterdate or time by:

voting by telephone or on the internet(which may not be available to somebeneficial holders) before 11:59 p.m.Eastern Time on Monday, May 17,2010 (your latest telephone or internetproxy is counted);

signing and delivering a proxy card witha later date; or

voting at the meeting. (If you hold your

shares beneficially through a broker,you must bring a legal proxy from thebroker in order to vote at the meeting.Please also note that attendance at the

meeting, in and of itself, without votingin person at the meeting, will not causeyour previously granted proxy to berevoked.)

Persons beneficially holding shares in one ofthe Companys 401(k) retirement planscannot vote in person at the meeting andmust vote in accordance with instructionsfrom the trustees. Subject to thesequalifications, such holders have the samerights as other record and beneficial holdersto change their votes.

If you are a registered stockholder, you can

obtain a new proxy card by contacting theCompanys Corporate Secretary, Alaska Air

Group, Inc., P.O. Box 68947, Seattle,WA 98168, telephone (206) 392-5131.

If your shares are held by a broker, trusteeor bank, you can obtain a new votinginstruction form by contacting your broker,trustee or bank.

If your shares are held by one of theCompanys 401(k) retirement plans, you canobtain a new voting instruction form by

contacting the trustee of such plan. You canobtain information about how to contact thetrustee from the Companys CorporateSecretary. Please refer to the section belowtitled How are shares voted that are held ina Company 401(k) plan? for more

information.

If you sign and date the proxy card or votinginstruction form and submit it in accordancewith the accompanying instructions and in atimely manner, any earlier proxy card or

voting instruction form will be revoked andyour choices on the proxy card or votinginstruction form will be voted as you

instruct.

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How are shares voted that are held in a

Company 401(k) plan?

On the record date, 1,634,883 shares wereheld in trust for Alaska Air Group 401(k) planparticipants. The trustees, Vanguard

Fiduciary Trust Company (Vanguard) andFidelity Management Trust Company(Fidelity), provided instructions to eachparticipant who held shares through theCompanys 401(k) plans on the record date.Vanguard sent a Notice of Proxy and AccessInstructions to participants; Fidelity mailed

full sets of proxy materials. The trustees willvote only those shares for which instructionsare received from participants. If aparticipant does not indicate a preferenceas to a matter, including the election of

directors, then the trustees will not vote theparticipants shares on such matters.

To allow sufficient time for voting by thetrustee, please provide voting instructionsno later than 11:59 p.m. Eastern Time onThursday, May 13, 2010. Because the

shares must be voted by the trustee,employees who hold shares through the401(k) plans may not vote these shares atthe meeting.

May I vote in person at the meeting?

We will pass out a ballot to any recordholder of our stock who requests a ballot atthe meeting. If you hold your shares througha broker, you must bring a legal proxy fromyour broker in order to vote by ballot at themeeting. You may request a legal proxy fromyour broker by indicating on your votinginstruction form that you plan to attend andvote your shares at the meeting, or at theinternet voting site to which your votingmaterials direct you. Please allow sufficienttime to receive a legal proxy through themail after your broker receives your request.

Because shares held by employees in the401(k) plans must be voted by the trustee,these shares may not be voted at themeeting.

Can I receive future materials via the

internet?

If you vote on the internet, simply follow theprompts for enrolling in the electronic proxydelivery service. This will reduce the

Companys printing and postage costs, aswell as the number of paper documents youwill receive.

Registered stockholders may enroll in thatservice at the time they vote their proxy or atany time after the Annual Meeting and can

read additional information about this optionand request electronic delivery by going towww.computershare.com/us/investor. If youhold shares beneficially, please contact yourbroker to enroll for the electronic proxy

delivery service.

At this time, employee participants in aCompany 401(k) plan may not elect toreceive notice and proxy materials viaelectronic delivery.

If you already receive your proxy materialsvia the internet, you will continue to receive

them that way until you instruct otherwisethrough the website referenced above.

How many shares must be present to holdthe meeting?

A majority of the Companys outstandingshares entitled to vote as of the recorddate, or 17,880,813 shares, must bepresent or represented at the meeting andentitled to vote in order to hold the meetingand conduct business (i.e., to constitute aquorum). Shares are counted as present or

represented at the meeting if thestockholder of record attends the meeting; ifthe beneficial holder attends with a legalproxy from the record holder; or if therecord holder has granted a proxy, whetherby returning a proxy card or by telephone orinternet, without regard to whether the proxyactually casts a vote or withholds orabstains from voting.

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How many votes must the nominees have

to be elected?

The Company has amended its Bylaws(effective September 10, 2009) to requireeach director to be elected at each annual

meeting by a majority of votes cast withrespect to that director. This means that thenumber of votes for a director mustexceed the number of votes against thatdirector. In the event that a nominee fordirector receives more against votes forhis or her election than for votes, the

Board must consider such directorsresignation following a recommendation bythe Boards Governance and NominatingCommittee. The majority voting standarddoes not apply, however, in the event that

the number of nominees for directorexceeds the number of directors to beelected. In such circumstances, directorswill instead be elected by a plurality of thevotes cast, meaning that the personsreceiving the highest number of for votes,up to the total number of directors to beelected at the Annual Meeting, will beelected.

With regard to the election to take place atthe Annual Meeting, the Board intends to

nominate the nine persons identified as itsnominees in this proxy statement. Becausethe Company has not received notice fromany stockholder of an intent to nominatedirectors at the Annual Meeting, each of thedirectors must be elected by a majority ofvotes cast.

What happens if a director candidate

nominated by the Board of Directors is

unable to stand for election?

The Board of Directors may reduce thenumber of seats on the Board or it maydesignate a substitute nominee. If the Board

designates a substitute, shares representedby proxies held by the named proxies,Messrs. Ayer and Loveless, will be voted forthe substitute nominee.

How many votes must the proposals to

ratify the appointment of KPMG LLP as

independent auditor, the advisory vote

regarding the compensation of the

Companys named executive officers, the

approval of Companys ESPP, and thestockholder proposal receive in order to

pass?

Appointment of KPMG LLP as the

Companys independent auditor

A majority of the shares present in person orby proxy at the meeting and entitled to voteon the proposals must be voted for theproposal in order for it to pass. Abstainvotes are deemed present and entitled tovote and are included for purposes ofdetermining the number of sharesconstituting a majority of shares present andentitled to vote. Accordingly, an abstention,

because it is not a vote for will have theeffect of a negative vote.

Advisory vote regarding the compensation of

the Companys named executive officers

A majority of the shares present in person orby proxy at the meeting and entitled to vote

on the proposals must be voted for the

proposal in order for it to pass. Abstainvotes are deemed present and entitled tovote and are included for purposes ofdetermining the number of sharesconstituting a majority of shares present andentitled to vote. Accordingly, an abstention,because it is not a vote for will have theeffect of a negative vote.

Approve the adoption of the Companys

ESPP proposal

Approval of the adoption of the ESPPrequires the affirmative vote of a majority ofthe shares represented at the AnnualMeeting, either in person or by proxy, andentitled to vote on the matter. In addition,under NYSE rules, approval of the ESPP alsorequires the affirmative vote of the majority

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of the votes cast on the proposal, providedthat the total of votes cast on the proposalrepresent over 50% of the voting power ofthe total outstanding shares of stock. Brokernon-votes will not be considered entitled to

vote for purposes of determining whetherthe ESPP proposal has been approved bystockholders. Abstain votes are deemedpresent and entitled to vote on the ESPPproposal and are included for purposes ofdetermining the number of shares presentand entitled to vote. Accordingly, an

abstention, not being a vote for will havethe effect of a vote against the proposal.

Stockholder proposal

A majority of the shares present in person orby proxy at the meeting and entitled to voteon the proposals must be voted for theproposal in order for it to pass. Abstainvotes are deemed present and entitled tovote and are included for purposes ofdetermining the number of shares

constituting a majority of shares present andentitled to vote. Accordingly, an abstention,because it is not a vote for will have theeffect of a negative vote.

How are votes counted?Voting results will be tabulated byComputershare. Computershare will alsoserve as the independent inspector ofelections.

Is my vote confidential?

The Company has a confidential votingpolicy as a part of its governance guidelines,which are published on the Companyswebsite.

Who pays the costs of proxy solicitation?

The Company pays for distributing andsoliciting proxies and reimburses brokers,nominees, fiduciaries and other custodianstheir reasonable fees and expenses in

forwarding proxy materials to beneficialowners. The Company has engagedGeorgeson Inc. (Georgeson) to assist inthe solicitation of proxies for the meeting. Itis intended that proxies will be solicited by

the following means: additional mailings,personal interview, mail, telephone andelectronic means. Although no preciseestimate can be made at this time, weanticipate that the aggregate amount we willspend in connection with the solicitation ofproxies will be approximately $18,000. To

date, $16,000 has been incurred. Thisamount includes fees payable to Georgeson,but excludes salaries and expenses of ourofficers, directors and employees.

Is a list of stockholders entitled to vote atthe meeting available?

A list of stockholders of record entitled to

vote at the 2010 Annual Meeting will beavailable at the Annual Meeting. It will alsobe available Monday through Friday fromApril 1, 2010 through May 17, 2010between the hours of 9 a.m. and 4 p.m.,local time, at the offices of the CorporateSecretary, 19300 International Blvd.,Seattle, WA 98188. A stockholder of recordmay examine the list for any legally valid

purpose related to the Annual Meeting.

Where can I find the voting results of the

meeting?

We will publish the preliminary voting resultsin a Form 8-K on or about May 21, 2010. Youcan read or print a copy of that report bygoing to the Companys website www.alaskaair.com/company, and thenselecting Investor Information, and SECFilings. Final results will be published in theCompanys Form 10-Q for the second quarter2010. You can read or print a copy of thatreport by going directly to the SEC EDGAR

files at http://www.sec.gov. You can also geta copy by calling us at (206) 392-5131, or bycalling the SEC at (800) SEC-0330 for thelocation of a public reference room.

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PROPOSAL 1.

ELECTION OF DIRECTORS

The Company currently has nine directors.The Companys Bylaws provide that the

directors up for election this year shall servea one-year term. Directors are elected tohold office until their successors are elected

and qualified, or until resignation or removalin the manner provided in our Bylaws. Nine

directors are nominees for election this yearand each has consented to serve a one-yearterm ending in 2011.

NOMINEES FOR ELECTION TO TERMS EXPIRING IN 2011

William S. Ayer

Director since 1999

Age 55

Mr. Ayer has served as chair, president andCEO of Alaska Air Group as well as chair of

Alaska Airlines and Horizon Air since May2003. He has been CEO of Alaska Airlinessince 2002, and served as president ofAlaska Airlines from 1997 to 2008. Prior to2003, Mr. Ayer worked in various marketing,planning and operational capacities atAlaska Airlines and Horizon Air. He hasserved on the Seattle Branch of the Federal

Reserve Board since 2007, and also serveson the boards of Alaska Airlines and HorizonAir, Puget Energy, Angel Flight West, theAlaska Airlines Foundation, the University of

Washington Business School Advisory Boardand the Museum of Flight. Mr. Ayer is chairof the boards of Puget Energy and itssubsidiary, Puget Sound Energy. He alsoserves as a member of the governance andaudit committees of the Puget Energy board.Mr. Ayers strategic planning skills and hisresponsibilities for execution of theCompanys strategic plan uniquely qualifyhim for his position on the Air Group Board.

Patricia M. Bedient

Director since 2004Age 56

Ms. Bedient serves as chair of the Boardsaudit committee. She is executive vice

president and CFO for the WeyerhaeuserCompany, one of the worlds largest

integrated forest products companies. Acertified public accountant (CPA) since1978, she served as the managing partnerof Arthur Andersen LLPs Seattle office priorto joining Weyerhaeuser. Ms. Bedient alsoworked at the firms Portland and Boiseoffices as a partner and as a certified publicaccountant (CPA) during her 27-year careerwith Andersen. She currently serves on theAlaska Airlines Board, the WeyerhaeuserFoundation board and the advisory board ofthe University of Washington School ofBusiness. She has also served on the

boards of a variety of civic organizationsincluding the Oregon State UniversityFoundation board of trustees, the WorldForestry Center, City Club of Portland, St.Marys Academy of Portland and the

Chamber of Commerce in Boise, Idaho. Sheis a member of the American Institute ofCPAs and the Washington Society of CPAs.Ms. Bedient received her bachelors degreein business administration, withconcentrations in finance and accounting,from Oregon State University in 1975. Withher extensive experience in publicaccounting and her financial expertise,Ms. Bedient is especially qualified to serveon the Board and to act as a financial

expert.

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Phyllis J. Campbell

Director since 2002

Age 58

Ms. Campbell serves as chair of the Boardscompensation committee. She was namedchair of the Pacific Northwest Region ofJPMorgan Chase & Co. in April 2009. Shealso serves on the firms executivecommittee. From 2003 to 2009,Ms. Campbell served as president and CEOof The Seattle Foundation. She waspresident of U.S. Bank of Washington from1993 until 2001 and also served as chair ofthe Banks Community Board. Ms. Campbell

has received several awards for hercorporate and community involvement.These awards include the Women Who

Make A Difference Award, and the Directorof the Year from the Northwest Chapter ofthe National Association of CorporateDirectors. Since August 2007, Ms. Campbellhas served on Toyotas Diversity AdvisoryBoard. She also serves on the boards ofHorizon Air, the Joshua Green Corporation,and Nordstrom, where she serves as chairof the audit committee. Until February 2009,Ms. Campbell served on the boards of PugetEnergy and Puget Sound Energy.Ms. Campbell is also chair of the Board of

Trustees of Seattle University.Ms. Campbells business and communityleadership background and governanceexperience uniquely qualify her for herservice on the Board.

Mark R. Hamilton

Director since 2001

Age 65

Mr. Hamilton serves on the Boards auditand safety committees. In June 2010, hewill officially retire as president of theUniversity of Alaska, a position he has held

since 1998. Before that, he served as aU.S. Army major general. His 31 years ofactive military duty were primarily in thefields of teaching, management and

administration. During his military tenure,Mr. Hamilton was chief of staff of theAlaskan Command at Elmendorf Air ForceBase and commander of division artillery atFort Richardson. Mr. Hamilton is a graduate

of the U.S. Military Academy at West Pointand is the recipient of the Armys highestpeacetime award, the Joint DistinguishedService Medal. Mr. Hamilton currently servesas a director of the Alaska Airlines Board,the Aerospace Corporation Board, AlaskaSealife Center Board, and The GovernorsAlaska Military Force Advocacy and Structure

Team. Previously, he served on the BPAmerica Advisory board. Mr. Hamiltonsexperience and leadership in the militarydistinguish him and qualify him for his Board

role.

Jessie J. Knight, Jr.

Director since 2002

Age 58

Mr. Knight serves on the Boards

compensation and governance andnominating committees. Starting in January2010, Mr. Knight has assumed the duties ofpresident and CEO for San Diego Gas andElectric Company, a subsidiary of Sempra

Energy. From 2006 to 2009, he wasexecutive vice president of external affairs atSempra Energy. From 1999 to 2006,Mr. Knight served as president and CEO ofthe San Diego Regional Chamber ofCommerce and, from 1993 to 1998, he wasa commissioner of the California PublicUtilities Commission. Prior to this,Mr. Knight won five coveted National ClioAwards for television, radio and printedadvertising and a Cannes Film Festival

Golden Lion Award for business marketingwhile at the San Francisco Chronicle andSan Francisco Examiner newspapers.Mr. Knight also serves on the boards ofAlaska Airlines, the San Diego PadresBaseball Club, and the Timken Museum ofArt in San Diego. He is also a standingmember of the Council on Foreign Relations.

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Mr. Knights knowledge and expertise onbrand and marketing make him particularlyqualified for the Alaska Air Group Board.

R. Marc Langland


Mr. Langland is lead director and chair ofthe Boards governance and nominatingcommittee. He has been chair and a directorof Northrim Bank (Anchorage, Alaska) since1998, and served as the banks presidentfrom 1990 until 2009. Mr. Langland hasalso served as chair, president and CEO ofthe banks parent company, NorthrimBanCorp, Inc. since December 2001. In

2001, Mr. Langland was inducted into theAlaska Business Hall of Fame. He was chairand CEO of Key Bank of Alaska from 1987to 1988 and president from 1985 to 1987.He served on the board of trustees of theAlaska Permanent Fund Corporation from

February 1987 to January 1991 and waschair from June 1990 to January 1991. Heis also a director of Horizon Air, Usibelli CoalMine, Elliott Cove Capital Management, andPacific Wealth Advisors, and is a member ofthe Anchorage Chamber of Commerce and a

board member and past chairman ofCommonwealth North. Mr. Langlandsbackground and skills honed as an Alaskanbusiness leader and banker uniquely qualifyhim for his role on the Board.

Dennis F. Madsen

Director since 2003

Age 61

Mr. Madsen serves on the compensationand audit committees. He is currently thechair of Pivotlink Software, a businessintelligence service company in Bellevue,Washington. In 2008, Mr. Madsen becamechair of specialty retailer Evolucion Inc. From2000 to 2005, Mr. Madsen was presidentand CEO of Recreational Equipment, Inc.(REI), a retailer and online merchant for

outdoor gear and clothing. He served asREIs executive vice president and COO from1987 to 2000, and prior to that heldnumerous positions throughout thecompany. He also serves on the boards of

Alaska Airlines, Horizon Air, PivotlinkSoftware, the Western WashingtonUniversity Foundation, Western WashingtonUniversity, Islandwood, PerformanceBicycles, and the Youth Outdoors LegacyFund. Mr. Madsens experience in leading alarge people-oriented and customer-servicedriven organization qualifies him for his

Board service.

Byron I. Mallott

Director since 1982

Age 66

Mr. Mallott serves on the Boards safety andgovernance and nominating committees.Currently he is a senior fellow of the FirstAlaskans Institute, a nonprofit organizationdedicated to the development of Alaska

Native peoples and their communities, aposition he has held since 2000. Since2007, Mr. Mallott has served on the Boardof Trustees of the Smithsonian InstitutionsNational Museum of the American Indian.

Mr. Mallott has served the state of Alaska invarious advisory and executive capacities,and has also served as mayor of Yakutatand as mayor of Juneau. From 1995 to1999, he served as executive director (chiefexecutive officer) of the Alaska PermanentFund Corporation, a trust managingproceeds from the state of Alaskas oilreserves. He was a director of SealaskaCorporation (Juneau, Alaska) from 1972 to1988, chair from 1976 to 1983, and CEO

from 1982 to 1992. He owns MallottEnterprises (personal investments) and is adirector of Alaska Airlines, director andmember of the nominating committee ofSealaska Corporation, and a director andmember of the audit committee of Yak-TatKwaan, Inc. and Native American Bank, NA.Mr. Mallotts leadership of native Alaskan

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people and his experience withgovernmental affairs qualifies him for hisrole on the Board.

J. Kenneth Thompson


Mr. Thompson serves on the Boardsgovernance and nominating committee andis chair of the Boards safety committee.Since 1999, Mr. Thompson has beenpresident and CEO of Pacific Star EnergyLLC, a private energy investment company inAlaska, with partial ownership in the oilexploration firm Alaska Venture CapitalGroup (AVCG LLC) where he serves as the

managing director. Mr. Thompson served asexecutive vice president of ARCOs AsiaPacific oil and gas operating companies in

Alaska, California, Indonesia, China andSingapore from 1998 to 2000. Prior to that,he was president of ARCO Alaska, Inc., theparent companys oil and gas producingdivision based in Anchorage, Alaska. He

also serves on the boards of Horizon Air,Tetra Tech, and Coeur dAlene MinesCorporation, and serves on a number ofcommunity service organizations.Mr. Thompson also serves on thegovernance/nominating and auditcommittees of Coeur DAlene Mines

Corporation and chairs its compensationcommittee. At Tetra Tech, Inc.,Mr. Thompson serves on the governance/nominating, compensation and strategyplanning committees. Mr. Thompsons

planning, operations and safety/regulatoryexperience specially qualifies him for hisAlaska Air Group Board service.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FORTHE ELECTION OF THENINE NOMINEES NAMED ABOVE AS DIRECTORS.

UNLESS OTHERWISE INDICATED ON YOUR PROXY, THE SHARES WILL BE VOTED FORTHEELECTION OF THESE NINE NOMINEES AS DIRECTORS.

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PROPOSAL 2.

RATIFICATION OF COMPANYS INDEPENDENT AUDITOR

The Audit Committee has selected KPMGLLP (KPMG) as Air Groups independent

auditor for fiscal year 2010, and the Boardis asking stockholders to ratify thatselection. Although current law, rules, andregulations, as well as the charter of theAudit Committee, require the AuditCommittee to engage, retain, and superviseAir Groups independent auditor, the Boardconsiders the selection of the independentauditor to be an important matter of

stockholder concern and is submitting theselection of KPMG for ratification by

stockholders as a matter of good corporatepractice.

The affirmative vote of holders of a majorityof the shares of common stock represented

at the meeting entitled to vote on theproposal is required to ratify the selection ofKPMG as Air Groups independent auditorfor the current fiscal year.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OFTHE COMPANYS INDEPENDENT AUDITOR.

PROPOSAL 3.

ADVISORY VOTE REGARDING THE COMPENSATIONOF THE COMPANYS NAMED EXECUTIVE OFFICERS

In March 2009, the Board of Directorsannounced its decision to become one of

the first public companies in the nation tovoluntarily solicit stockholder input onexecutive pay.

With this proposal, the Board of Directorsgives the stockholders of the Company theopportunity to vote on the following advisoryresolution:

RESOLVED, that the stockholdershereby ratify the compensation of thenamed executive officers set forth inthe Summary Compensation Table andthe accompanying

footnotes included in the Companysproxy statement (but not including the

Compensation Discussion andAnalysis).

See the Summary Compensation Table andaccompanying footnotes on page 46.

The stockholder vote will not be binding onthe Company and will not be construed asoverruling a decision by the Board orcreating or implying any fiduciary duty by theBoard. However, the CompensationCommittee will take into account theoutcome of the vote when considering futureexecutive compensation arrangements.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FORTHE RATIFICATION OFTHE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS.

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PROPOSAL 4.

APPROVAL OF THE ALASKA AIR GROUP, INC. 2010 EMPLOYEE STOCK PURCHASE PLAN

Overview

At the Annual Meeting, stockholders arebeing asked to approve the Alaska AirGroup, Inc. Employee Stock Purchase Plan(the ESPP), which was adopted, subject tostockholder approval, by the Board onMarch 11, 2010.

Under the ESPP, shares of the Companyscommon stock will be available for purchaseby eligible employees who elect toparticipate in the ESPP. Eligible employeeswill be entitled to purchase, by means of

payroll deductions, limited amounts of theCompanys common stock during periodicOffering Periods. The ESPP will not beeffective without stockholder approval.

The Board believes that the ESPP will helpthe Company retain and motivate eligibleemployees and help further align theinterests of eligible employees with those ofthe Companys stockholders. The new ESPPwill replace our 2002 Employee StockPurchase Plan, which terminated at the end

of February 2010.

Summary Description of the ESPP

The principal terms of the ESPP aresummarized below. The following summaryis qualified in its entirety by the full text ofthe ESPP, which is attached as Exhibit A tothis Proxy Statement.

Purpose

The purpose of the ESPP is to provideeligible employees with an opportunity topurchase shares of the Companys commonstock at a favorable price and uponfavorable terms in consideration of theparticipating employees continued services.The ESPP is intended to provide an

additional incentive to participating eligibleemployees to remain in the Companys

employ and to advance the best interests ofthe Company and its stockholders.

Operation of the ESPP

The ESPP will generally operate inconsecutive six-month periods referred to asOffering Periods, also referred to asPurchase Periods. The determination of theduration of future Offering Periods and

Purchase Periods may be changed from timeto time. However, only one Offering Period

may be in effect at any one time, and anOffering Period may not be shorter than threemonths and may not be longer than 27months. Although the ESPP gives us flexibilityto change the structure of future OfferingPeriods and Purchase Periods, at present weexpect that the initial Offering Period willcommence on September 1, 2010 and thenext consecutive Offering Period tocommence on March 1, 2011. The Companymay change, if it so desires, the OfferingPeriods and Purchase Periods in the future.

On the first day of each Offering Period(referred to as the Grant Date), eacheligible employee who has timely filed a validelection to participate in the ESPP for thatOffering Period will be granted an option topurchase shares of the Companys commonstock. A participant must designate in his orher election the percentage of his or hercompensation to be withheld from his or herpay during that Offering Period for thepurchase of stock under the ESPP. Theparticipants contributions under the ESPPwill be credited to a bookkeeping account inhis or her name. Subject to certain limits, aparticipant generally may elect to terminate

(but may not otherwise increase or decrease)his or her contributions to the ESPP during anOffering Period. A participant generally may

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elect to increase, decrease or terminate hisor her contributions to the ESPP effectivewith the first Purchase Period thatcommences after the election is received.Amounts contributed to the ESPP constitute

general corporate assets of the Company andmay be used for any corporate purpose.

Each option granted under the ESPP willautomatically be exercised on the last day ofeach Purchase Period that occurs during theOffering Period with respect to which it wasgranted (referred to as the Purchase Date).The number of shares acquired by a

participant upon exercise of his or her optionwill be determined by dividing theparticipants ESPP account balance as of theapplicable Purchase Date by the OptionPrice for that Purchase Period. Thedetermination of the Option Price for aPurchase Period may be changed from timeto time, except that in no event may theOption Price for a Purchase Period be lowerthan the lesser of (i) 85% of the fair marketvalue of a share of the Companys commonstock on the applicable Grant Date, or(ii) 85% of the fair market value of a share ofthe Companys common stock on theapplicable Purchase Date. Although the ESPPgives us flexibility to change the method for

setting the Option Price, we initially expect toset the Option Price under the ESPP usingthe formula described above. We maychange, if we desire, the method forestablishing the Option Price in the futureprovided that any change we make ispermitted by the ESPP and will not take effectuntil the next Purchase Period after thechange. A participants ESPP account will bereduced upon exercise of his or her option bythe amount used to pay the Option Price ofthe shares acquired by the participant. No

interest will be paid to any participant orcredited to any account under the ESPP.

Eligibility

Only certain employees will be eligible toparticipate in the ESPP. To be eligible to

participate in an Offering Period, on theGrant Date of that period an individual must:

have completed at least six months ofcontinuous employment with theCompany or one of its subsidiaries that

has been designated as a participatingsubsidiary; and

be customarily employed for more than

five months per calendar year.

As of March 1, 2010, approximately 13,700employees of the Company and itssubsidiaries, including all of our namedexecutive officers, were eligible toparticipate in the ESPP.

Limits on Authorized Shares; Limits onContributions

If stockholders approve the ESPP, amaximum of 2,000,000 shares of ourcommon stock may be purchased under theESPP. Participation in the ESPP is alsosubject to the following limits:

A participant cannot contribute lessthan 1% or more than 10% of his or hercompensation to the purchase of stockunder the ESPP in any one payrollperiod.

A participant cannot purchase morethan 2,000 shares of the Companyscommon stock under the ESPP withrespect to any one Offering Period.

A participant cannot purchase morethan $25,000 of stock (valued at thestart of the applicable Offering Periodand without giving effect to any discountreflected in the purchase price for thestock) under the ESPP in any onecalendar year.

A participant will not be granted anoption under the ESPP if it would causethe participant to own stock and/orhold outstanding options to purchasestock representing 5% or more of thetotal combined voting power or value of

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all classes of stock of the Company orone of its subsidiaries or to the extent itwould exceed certain other limits underthe U.S. Internal Revenue Code (theCode).

We have the flexibility to change the 1% and10% contribution limits and the individualshare limits referred to above from time totime without stockholder approval. However,we cannot increase the aggregate-share limitunder the ESPP, other than to reflect stocksplits and similar adjustments as describedbelow, without stockholder approval. The$25,000 and the 5% ownership limitationsreferred to above are required under theCode.

Anti-dilution Adjustments

As is customary in stock incentive plans ofthis nature, the number and kind of sharesavailable under the ESPP, as well as ESPPpurchase prices and share limits, aresubject to adjustment in the case of certaincorporate events. These events includereorganizations, mergers, combinations,

consolidations, recapitalizations,reclassifications, stock splits, stockdividends, asset sales or other similarunusual or extraordinary corporate events,or extraordinary dividends or distributions ofproperty to our stockholders.

Termination of Participation

A participants election to participate in theESPP will generally continue in effect for allOffering Periods until the participant files anew election that takes effect or theparticipant ceases to participate in theESPP. A participants participation in the

ESPP generally will terminate if, prior to theapplicable Purchase Date, the participantceases to be employed by the Company orone of its participating subsidiaries or theparticipant is no longer scheduled to workmore than five months per calendar year.

If a participants ESPP participationterminates during an Offering Period for anyof the reasons discussed in the precedingparagraph, he or she will no longer bepermitted to make contributions to the ESPP

for that Offering Period and, subject tolimited exceptions, his or her option for thatOffering Period will automatically terminateand his or her ESPP account balance will bepaid to him or her in cash without interest.However, a participants termination fromparticipation will not have any effect uponhis or her ability to participate in any

succeeding Offering Period, provided thatthe applicable eligibility and participationrequirements are again then met.

Transfer Restrictions

A participants rights with respect to optionsor the purchase of shares under the ESPP,as well as contributions credited to his orher ESPP account, may not be assigned,

transferred, pledged or otherwise disposedof in any way except by will or the laws ofdescent and distribution.

Administration

The ESPP is administered by the Board or by

a committee appointed by the Board. TheBoard has appointed the CompensationCommittee of the Board as the current

administrator of the ESPP. The administratorhas full power and discretion to adopt,amend or rescind any rules and regulationsfor carrying out the ESPP and to construeand interpret the ESPP. Decisions of theESPP administrator with respect to the ESPPare final and binding on all persons.

No Limit on Other Plans

The ESPP does not limit the ability of theBoard or any committee of the Board togrant awards or authorize any othercompensation, with or without reference tothe Companys common stock, under anyother plan or authority.

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Amendments

The Board generally may amend or terminatethe ESPP at any time and in any manner,provided that the then-existing rights ofparticipants are not materially and adversely

affected thereby. Stockholder approval foran amendment to the ESPP will only berequired to the extent necessary to meet the

requirement of Section 423 of the Code orto the extent otherwise required by law orapplicable stock exchange rules. The ESPPadministrator also may, from time to time,without stockholder approval and withoutlimiting the Boards amendment authority,designate those subsidiaries of theCompany whose employees may participatein the ESPP and, subject only to certain

limitations under the Code, change theESPPs eligibility rules.

Termination

Unless the Board terminates the ESPPearlier, this Plan will terminate on, and nonew Offering Periods will commence underthe ESPP after March 1, 2020. The ESPPwill also terminate earlier if all of the shares

authorized under the ESPP have beenpurchased.

Federal Income Tax Consequences of the

ESPP

Following is a general summary of thecurrent federal income tax principlesapplicable to the ESPP. The followingsummary is not intended to be exhaustiveand, among other considerations, does notdescribe the deferred compensationprovisions of Section 409A of the U.S.Internal Revenue Code to the extent an

award is subject to and does not satisfythose rules, nor does it describe state, localor international tax consequences.

The ESPP is intended to qualify as anemployee stock purchase plan underSection 423 of the U.S. Internal Revenue

Code. Participant contributions to the ESPPare made on an after-tax basis. That is, aparticipants ESPP contributions arededucted from compensation that is taxableto the participant and for which the Company

is generally entitled to a tax deduction.

Generally, no taxable income is recognizedby a participant with respect to either thegrant or exercise of his or her ESPP option.The Company will have no tax deduction withrespect to either of those events. Aparticipant will generally recognize income(or loss) only upon a sale or disposition ofany shares that the participant acquiresunder the ESPP. The particular taxconsequences of a sale of shares acquired

under the ESPP depend on whether theparticipant has held the shares for aRequired Holding Period before selling ordisposing of the shares. The RequiredHolding Period starts on the date that theparticipant acquires the shares under theESPP and ends on the later of (1) two yearsafter the Grant Date of the Offering Period inwhich the participant acquired the shares, or(2) one year after the Purchase Date onwhich the participant acquired the shares.

If the participant holds the shares for theRequired Holding Period and then sells theshares at a price in excess of the purchaseprice paid for the shares, the gain on thesale of the shares will be taxed as ordinaryincome to the participant to the extent of thelesser of (1) the amount by which the fairmarket value of the shares on the Grant Dateof the Offering Period in which the participantacquired the shares exceeded the purchaseprice of the shares (calculated as though the

shares had been purchased on the GrantDate), or (2) the gain on the sale of theshares. Any portion of the participants gainon the sale of the shares not taxed asordinary income will be taxed as long-termcapital gain. If the participant holds theshares for the Required Holding Period andthen sells the shares at a price less than the

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purchase price paid for the shares, the losson the sale will be treated as a long-termcapital loss to the participant. The Companywill not be entitled to a tax deduction withrespect to any shares held by the participant

for the Required Holding Period, regardless ofwhether the shares are eventually sold at again or a loss.

The participant has a DisqualifyingDisposition if the participant disposes of theshares before the participant has held theshares for the Required Holding Period. If theparticipant sells the shares in a Disqualifying

Disposition, the participant will realizeordinary income in an amount equal to thedifference between the purchase price paid

for the shares and the fair market value ofthe shares on the Purchase Date on whichthe participant acquired the shares, and theCompany generally will be entitled to acorresponding tax deduction. In addition, ifthe participant makes a DisqualifyingDisposition of the shares at a price in excessof the fair market value of the shares on thePurchase Date, the participant will realizecapital gain in an amount equal to thedifference between the selling price of theshares and the fair market value of the

shares on the Purchase Date. Alternatively, ifthe participant makes a DisqualifyingDisposition of the shares at a price less thanthe fair market value of the shares on thePurchase Date, the participant will realize acapital loss in an amount equal to thedifference between the fair market value ofthe shares on the Purchase Date and theselling price of the shares. The Company willnot be entitled to a tax deduction withrespect to any capital gain realized by aparticipant.

Securities Underlying Awards

The closing price of a share of theCompanys common stock as of March 19,2010 was $40.17 per share.

Specific Benefits

The benefits that will be received by orallocated to eligible employees under theESPP cannot be determined at this timebecause the amount of contributions setaside to purchase shares of the Companyscommon stock under the ESPP (subject tothe limitations discussed above) is entirelywithin the discretion of each participant.

Vote Required for Approval of the Employee

Stock Purchase Plan

The Board believes that approval of theadoption of the ESPP will promote theCompanys interests and the interests of itsstockholders and continue to enable the

Company to attract, retain and rewardpersons important to its success.

Members of the Board who are notemployees are not eligible to participate inthe ESPP. All of the Companys executive

officers (including the named executiveofficers) are eligible to participate in theESPP and thus have a personal interest inthe approval of the ESPP.

Approval of the adoption of the ESPPrequires the affirmative vote of a majority ofthe shares represented at the annualmeeting, either in person or by proxy, andvoting on the matter. Broker non-votes andabstentions will not be counted as a votefor or against this ESPP proposal.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FORTHEAPPROVAL OF THE ALASKA AIR GROUP, INC. 2010 EMPLOYEE STOCK PURCHASE PLAN

AS DESCRIBED ABOVE AND SET FORTH IN EXHIBIT A.

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CORPORATE GOVERNANCE

Structure of the Board of Directors

In accordance with the Delaware GeneralCorporation Law and the Companys

Certificate of Incorporation and Bylaws, ourbusiness affairs are managed under thedirection of our Board of Directors. Directors

meet their responsibilities by, among otherthings, participating in meetings of theBoard and Board committees on which theyserve, discussing matters with our Chairmanand CEO and other officers, reviewingmaterials provided to them, and visiting ourfacilities.

Pursuant to the Bylaws, the Board of

Directors has established four standingcommittees, which are the Audit Committee,

the Compensation Committee, theGovernance and Nominating Committee, andthe Safety Committee. Only independent

directors serve on these committees. TheBoard has adopted a written charter for eachcommittee. The charters of the Audit,Compensation, Governance and Nominating,and Safety Committees are posted on theCompanys website and can be accessedfree of charge at http://www.alaskaair.com/and are available in print to any stockholderwho submits a written request to theCompanys Corporate Secretary.

The table below shows the currentmembership of the standing Boardcommittees. An asterisk (*) identifies thechair of each committee.

Board Committee Memberships

Name Audit CompensationGovernance and

Nominating Safety

Patricia M. Bedient *

Phyllis J. Campbell *

Mark R. Hamilton

Jessie J. Knight, Jr.

R. Marc Langland *

Byron I. Mallott

Dennis F. Madsen J. Kenneth Thompson *

The principal functions of the standing Boardcommittees are as follows:

Governance and Nominating Committee

Pursuant to its charter, the Governance andNominating Committees responsibilitiesinclude the following:

1. Develop and monitor the Corporate

Governance Guidelines.

2. Evaluate the size and composition of theBoard and annually review compensationpaid to members of the Board.

3. Develop criteria for Board membership.

4. Evaluate the independence of existingand prospective members of the Board.

5. Seek qualified candidates for election tothe Board.

6. Evaluate the nature, structure andcomposition of other Board committees.

7. Take steps it deems necessary orappropriate with respect to annualassessments of the performance of the

Board, and each Board committee, includingitself.

8. Annually review and reassess theadequacy of the Committees charter and itsperformance, and recommend any proposedchanges in the charter to the Board ofDirectors for approval.

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Audit Committee

Pursuant to its charter, the AuditCommittees responsibilities include thefollowing:

1. Matters pertaining to the independentauditors:

appoint them and oversee their work;

review at least annually their statementregarding their internal quality-controlprocedures and their relationship withthe Company;

maintain a dialogue with respect totheir independence;

pre-approve all auditing andnon-auditing services they are toperform;

review annual and quarterly financialstatements and filings made with theSEC;

receive and review communicationsrequired from the independent auditorsunder applicable rules and standards;

establish clear hiring policies foremployees and former employees of theindependent auditors;

review audited financial statements withmanagement and the independentauditors; and

receive and review requiredcommunications from the independentauditors.

2. Matters pertaining to the internal auditor:

review the planned activities and resultsof the internal auditors and any

changes in the internal audit charter.

3. Matters pertaining to filings withgovernment agencies:

prepare the Audit Committee Reportrequired for the annual proxy statement.

4. Matters pertaining to controls:

review major financial reporting riskexposure and adequacy andeffectiveness of associated internalcontrols;

review procedures with respect tosignificant accounting policies and theadequacy of financial controls;

discuss with management policies withrespect to risk assessment and riskmanagement including the process bywhich the Company undertakes riskassessment and management;

discuss with management, asappropriate, earnings releases and any

information provided to analysts andrating agencies;

develop, monitor and reassess fromtime to time a Corporate Complianceprogram, including a Code of Conductand Ethics policy, decide on requestedchanges to or waivers of such programand code relating to officers anddirectors, and establish procedures forconfidential treatment of complaintsconcerning accounting, internal controlsor auditing matters; and

obtain and review at least quarterly astatement from the CEO, CFO andDisclosure Committee disclosing anysignificant deficiencies in internalcontrols and any fraud that involvesmanagement or other employees with

significant roles in internal controls.

5. Annually review and reassess the

adequacy of its charter and the Committeesperformance and recommend for Boardapproval any proposed changes to the

charter.

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Compensation Committee

Pursuant to its charter, the CompensationCommittees responsibilities include thefollowing:

1. Establish the process for approvingcorporate goals relevant to CEOcompensation and evaluating CEOperformance in light of those goals.

2. Set the salary of the CEO.

3. Approve salaries of other electedexecutive officers of Alaska Airlines andHorizon Air.

4. Set annual goals under the Performance-

Based Pay and Operational PerformanceRewards plans and administer the plans.

5. Grant stock awards and stock options.

6. Administer the supplementary retirementplans for elected officers and the equity-

based incentive plans.

7. Make recommendations to the Boardregarding other executive compensation

issues, including modification or adoption ofplans.

8. Fulfill ERISA fiduciary and non-fiduciaryfunctions for tax-qualified retirement plans

by monitoring the Alaska Air Group Pension/Benefits Administrative Committee, DefinedContribution Retirement BenefitsAdministrative Committee, and the PensionFunds Investment Committee, and theHorizon Air Profit Sharing AdministrativeCommittee, and approve the membership ofthose committees, trustees and trustagreements, and extension of plan

participation to employees of subsidiaries.

9. Approve the terms of employment andseverance agreements with elected officersand the form of change in controlagreements.

10. Review executive-level leadershipdevelopment and succession plans.

11. Administer and make recommendationsto the Board of Directors with respect to the

Companys equity and other long-termincentive equity plans.

12. Make modifications to the AlaskaAirlines and Horizon Air profit sharing plans.

13. Produce the report on executivecompensation required for the annual proxystatement.

14. Annually review and reassess theadequacy of the Committees charter and itsperformance, and recommend any proposedchanges in the charter to the Board ofDirectors for approval.

Safety Committee

Pursuant to its charter, the SafetyCommittees responsibilities include thefollowing:

1. Monitor managements efforts to ensurethe safety of passengers and employees of

the Air Group companies.

2. Monitor and assist management in

creating a uniform safety culture thatachieves the highest possible industryperformance measures.

3. Review managements efforts to ensureaviation security and reduce the risk ofsecurity incidents.

4. Periodically review with management andoutside experts all aspects of airline safety.

5. Evaluate the Companys health, safetyand environmental policies and practices.

6. Annually review and reassess theadequacy of the Committees charter and itsperformance, and recommend any proposed

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changes in the charter to the Board ofDirectors for approval.

Board and Committee Meetings

In 2009, the Board of Directors held sixregular meetings. The standing Boardcommittees held the following number ofmeetings in 2009:

Audit Committee 8

Compensation Committee 5

Governance and NominatingCommittee 4

Safety Committee 4

Each director attended, on average, at least93% of all Board and applicable committeemeetings during 2009. Each director isexpected to attend the Companys AnnualMeeting of Stockholders. Last year, eight of

nine directors attended the annual meeting.

Director Independence

The Board of Directors of the Company hasdetermined that all of the directors exceptMr. Ayer, which includes each member ofthe Audit Committee, Governance andNominating Committee, and Compensation

Committee, are independent under theNYSE listing standards and the Companysindependent director standards that are setforth in the Companys CorporateGovernance Guidelines. In making itsdetermination, the Board of Directorsconsidered the amount of charitablecontributions made by the Company tocertain charitable organizations on whichMs. Bedient serves as director and theamount of a charitable contribution made bythe Company to the University of Alaskawhere Mr. Hamilton is currently employed asPresident. After consideration of thesematters and in accordance with the Boardsindependent director criteria, the Board of

Directors affirmatively determined that noneof these matters is a material relationshipwith the Company because the amounts ofthe contributions were immaterial withrespect to the Companys and the charitable

organizations annual revenues.

Each member of the Companys AuditCommittee meets the additionalindependence, financial literacy andexperience requirements contained in thecorporate governance listing standards ofthe NYSE relating to audit committees orrequired by the SEC. The Board hasdetermined that Ms. Bedient is an audit

committee financial expert as defined inSEC rules.

The Corporate Governance Guidelines areavailable on the Companys internet websiteat http://www.alaskaair.com and areavailable in print to any stockholder whosubmits a written request to the CompanysCorporate Secretary. Specifically, the Boardhas determined that independent directorsmeet the following criteria:

An independent director must have nomaterial relationship with the Company,

based on all material facts andcircumstances. At a minimum, anindependent director must meet each of thecategorical standards listed below.

1. The director has not, within the last threeyears, been employed by and no immediatefamily member has been an executive officer

of the Company.

2. Neither the director nor any immediatefamily member has, in any 12-month periodin the last three years, received more than$100,000 in direct compensation from theCompany, other than compensation fordirector or committee service and pension orother deferred compensation for priorservice.

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3. (i) Neither the director nor any immediatefamily member is a current partner of theCompanys independent auditor firm; (ii) thedirector is not a current employee of theindependent auditor firm; (iii) no immediate

family member is a current employee of theindependent auditor firm working in its audit,assurance or tax compliance practice; and(iv) neither the director nor any immediatefamily member was an employee or partnerof the independent auditor firm within thelast three years and worked on the

Companys audit within that time.

4. Neither the director nor any immediatefamily member has, within the last threeyears, been part of an interlocking

directorate. This means that no executiveofficer of the Company serves on thecompensation committee of a company thatemploys the director or immediate familymember.

5. The director is not currently an employee,and no immediate family member is anexecutive officer, of another company (i) thatrepresented at least 2% or $1 million,whichever is greater, of the Companysgross revenues, or (ii) of which the Company

represented at least 2% or $1 million,whichever is greater, of such othercompanys gross revenues, in any of the lastthree fiscal years. Charitable contributionsare excluded from this calculation.

The Board considers that the followingsituations do not create materialrelationships:

Documents

Request-2009 ALK Annual Report and 2010 Proxy Statement