2011 Annual Report & 2012 Proxy Statement

Today’s Alaska Airlines | 1990-today Horizon Air | 1981-today Jet America | 1981-1987 The Smiling Eskimo | 1976-1990 The Spirit of Alaska | 1973-1976 The Golden Samovar Era | 1969-1973 The Golden Nugget Era | 1966-1972 Alaska Coastal-Ellis | 1962 -1968 The Jet Age | 1961-today The Golden Eagle Era | 1955-1966 Collins Air Service | 1947-1950 CollinsC Air Service purchased by Alaska Airlines Alaska Island Airways | 1946-1951 AlaskaA Island Airways merged with Alaska Coastal The Starliner Era | 1945-1955 StStarliner Era Alaska Airlines Inc. | May 2, 1944 Alaska Star Airlines | 1942-1944 AlaskaA Star Airlines incorporated as Alaska Airlines Christensen Air Service | 1940-1952 ChristensenC Air Service merged with Cordova Airlines Alaska Coastal Airlines | 1939-1965 Petersburg Air Service | 1938-1946 Purchased and renamed Alaska Island Air Star Air Lines | 1937-1942 Starr Airlines Airlinen sbe becamecamec AlaskaAlaA s Star Airlines Ellis Air Lines | 1936-1965 Lavery Airways | 1936-1942 LaveryL Airways purchased by Alaska Star Airlines Marine Airways | 1936-1939 MarineMa Airways merged with Alaska Air Transport and became Alaska Coastal Cordova Airlines | 1934-1968 Mirow Air Service | 1934-1942 MirowM Air Service purchased by Alaska Star Airlines Alaska Air Transport | 1934-1939 AlaskaAla Air Transport merged with Marine Airways and became Alaska Coastal Al Jones Airways | 1933-1950 AlA Jones Airways purchased by Alaska Airlines in 1950 Pollack Flying Service | 1933-1942 PollackPoP Flying Service purchased by Alaska Star Airlines Star Air Service | 1932-1934 McGee Airways & Star Air Service merged and later became Star Airlines McGee Airways | 1932-1934 } 2 3 4 5 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 Golden EagleEra cometoAlaska Jets Cordova AirlinesmergedwithAlaska Ellis AirLinesmergedwithAlaskaCoastal Alaska CoastalAirlinesmergedwithEllisAirLines 1968 Alaska Coastal-EllismergedwithAirlines A 1969 1970 1971 1972 Era Golden Nugget 1973 1974 1975 1976 1977 1978 Spirit ofAlaskaLivery 1979 1980 1981 1982 1983 1984 1985 1986 Jet AmericamergedwithAlaskaAirlines Jet Je 1987 t 1988 1989 1990 Smiling Eskimo 1991 1992 1993 Livery Adopted 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 in1986. Air Group Horizon AirjoinsAlaska 2009 i 2010 i ji j 2011 l 2012 k 2012 PROXY STATEMENT All share numbers (including equity grant amounts for stock options and stock units) are after giving effect to the two-for-one stock split that became effective March 19, 2012. ALASKA AIR GROUP, INC. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT TABLE OF CONTENTS GENERAL INFORMATION Annual Meeting Information ......................................................... 1 Questions and Answers about Voting ................................................. 1 PROPOSALS TO BE VOTED ON Proposal 1: Election of Directors to One-Year Terms ..................................... 10 Proposal 2: Ratification of the Appointment of the Company’s Independent Accountants ......... 14 Proposal 3: Advisory Vote to Approve the Compensation of the Company ..................... 14 Proposal 4: Stockholder Proposal Regarding Retention of Company Stock by Executives ......... 16 CORPORATE GOVERNANCE Structure of the Board of Directors ................................................... 19 Director Independence ............................................................ 22 Director Nomination Policy .......................................................... 24 Board Leadership ................................................................ 27 Risk Oversight ................................................................... 28 Executive Sessions and Lead Director ................................................ 29 Stockholder Communication Policy ................................................... 29 Code of Conduct and Ethics ........................................................ 29 Certain Relationships and Related Transactions ......................................... 30 AUDIT COMMITTEE MATTERS Independent Accountants .......................................................... 31 Audit Committee Report ........................................................... 32 DIRECTOR COMPENSATION 2011 Director Compensation ....................................................... 34 Director Stock Ownership Policy ..................................................... 35 EXECUTIVE COMPENSATION Compensation Discussion and Analysis ............................................... 36 Compensation and Leadership Development Committee Report ............................ 50 Compensation and Leadership Development Committee Interlocks and Insider Participation ...... 51 2011 Summary Compensation Table ................................................. 52 2011 Grants of Plan-Based Awards ................................................... 54 Outstanding Equity Awards at 2011 Fiscal Year-End ...................................... 55 2011 Option Exercises and Stock Vested .............................................. 56 Pension and Other Retirement Plans .................................................. 57 2011 Nonqualified Deferred Compensation ............................................ 59 Potential Payments Upon Change in Control and Termination .............................. 60 SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Management .................................................. 63 5% or More Beneficial Owners ...................................................... 64 Section 16(a) Beneficial Ownership Reporting Compliance ................................. 65 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS P.O. Box 68947 Seattle, Washington 98168 To our Stockholders: 5. To transact such other business as may properly come before the meeting or The Annual Meeting of Stockholders of any postponement or adjournment Alaska Air Group, Inc. (the “Annual thereof. Meeting”) will be held at the Museum of Flight in Seattle, Washington at 2 p.m. on Stockholders owning Company common Proxy Š Tuesday, May 15, 2012, for the following stock at the close of business on March 23, purposes: 2012 are entitled to receive this notice and 1. To elect to the Board of Directors the to vote at the meeting. All stockholders are ten nominees named in this Proxy requested to be present in person or by Statement, each for a one-year term; proxy. Whether or not you attend the meeting in person, we encourage you to vote 2. To ratify the appointment of KPMG LLP by internet or phone or to complete, sign as the Company’s independent and return your proxy prior to the meeting. registered public accountants (the “independent accountants”) for fiscal Every shareholder vote is important. To year 2012; ensure your vote is counted at the Annual 3. To seek an advisory vote to approve the Meeting, please vote as promptly as compensation of the Company’s named possible. executive officers; By Order of the Board of Directors, 4. To consider a stockholder proposal regarding retention of company stock by executives; and Keith Loveless Corporate Secretary and General Counsel April 4, 2012 IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 15, 2012. Stockholders may access, view and download the 2012 Proxy Statement and 2011 Annual Report at www.edocumentview.com/alk. GENERAL INFORMATION ANNUAL MEETING INFORMATION The Board of Directors of Alaska Air Group, “Notice”) directing them to a website where Inc. (“AAG” or the “Company”) is soliciting they can access our 2012 Proxy Statement proxies for the 2012 Annual Meeting of and 2011 Annual Report (the “Annual Stockholders. This Proxy Statement contains Meeting Materials”). Others were mailed important information for you to consider hard copies of the Annual Meeting when deciding how to vote on the matters Materials, including a voting instruction brought before the meeting. Please read it form, on the same date. The Company’s carefully. Form 10-K for the year ended December 31, 2011 is included in the 2011 Annual Proxy The Board set March 23, 2012 as the Report. It was filed with the Securities and Š record date for the meeting. Stockholders Exchange Commission (“SEC”) on who owned Company common stock on that February 21, 2012. date are entitled to vote at the meeting, with each share entitled to one vote. There were If you received the Notice and would like to 71,398,578 shares of Company common receive a paper copy of the proxy materials, stock outstanding on the record date. please follow the instructions printed on the Notice and the material will be mailed to Internet Availability of Annual Meeting you. Materials All stockholders may access, view and On or about April 4, 2012, stockholders of download the Annual Meeting Materials the record, beneficial owners and a majority of internet at www.edocumentview.com/alk. employee participants in the Company’s Information on the website does not 401(k) Plans were mailed a Notice of constitute part of this Proxy Statement. Internet Availability of Proxy Materials (the QUESTIONS AND ANSWERS Why am I receiving this annual meeting stock certificates registered in your name or information and proxy? if you have a Direct Registration Service (DRS) advice evidencing shares held in book You are receiving this annual meeting entry form, then you have a stockholder information

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