2004 LONG-TERM INCENTIVE PLAN

 

EXHIBIT 10.2

                             ALASKA AIR GROUP, INC.
                          2004 LONG-TERM INCENTIVE PLAN

               ADOPTED BY THE BOARD OF DIRECTORS ON MARCH 31, 2004
            APPROVED BY ALASKA AIR GROUP SHAREHOLDERS ON MAY 18, 2004
                AMENDED BY THE BOARD OF DIRECTORS ON JUNE 2, 2004

1. PURPOSE

      The purpose of the Alaska Air Group, Inc. 2004 Long-Term Incentive Equity
Plan (the "Plan") is to promote the long-term profitability of Alaska Air Group,
Inc. ("Air Group" and together with its subsidiaries, the "Company") and to
enhance value for its stockholders by offering incentives and rewards to key
employees, officers and directors of the Company, to retain their services and
to encourage them to acquire and maintain stock ownership in the Company.

2. TERM

      The Plan shall become effective as of May 18, 2004, subject to the
approval of the stockholders of Air Group, and shall terminate at the close of
business on the tenth anniversary of such approval date unless terminated
earlier by the Board. After termination of the Plan, no future awards may be
granted, but previously granted awards shall remain outstanding in accordance
with their applicable terms and conditions and the terms and conditions of the
Plan.

3. PLAN ADMINISTRATION

      The Compensation Committee (the "Committee") of the Board of Directors of
the Air Group (the "Board") shall be responsible for administering the Plan. The
members of the Committee shall be appointed by the Board and shall consist
solely of three or more nonemployee members of the Board who are "independent"
directors as defined in the New York Stock Exchange's Listed Company Manual and
who are intended to qualify to administer the Plan as contemplated by (a) Rule
16b-3 under the Securities and Exchange Act of 1934 (the "Exchange Act") or any
successor rules, and (b) Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Committee shall have full and exclusive power to
interpret the Plan and to adopt such rules, regulations and guidelines for
carrying out the Plan as it may deem necessary or proper, all of which power
shall be executed in the best interests of the Company and in keeping with the
objectives of the Plan. This power includes but is not limited to selecting
award recipients, establishing all award terms and conditions and adopting
modifications, amendments and procedures, as well as rules and regulations
governing awards under the Plan, and to make all other determinations necessary
or advisable for the administration of the Plan. In no event, however, shall the
Committee have the power to cancel outstanding stock options or stock
appreciation rights ("SARs") for the purpose of replacing or re-granting such
options or SARs with a purchase price that is less than the purchase price of
the original option or SAR. The interpretation and construction of any provision
of the Plan or any option or right granted hereunder and all determinations by
the Committee in each case shall be final, binding and conclusive with respect
to all interested parties.

4. ELIGIBILITY

      Any employee or director of the Company shall be eligible to receive
awards under the Plan. "Employee" shall also include any former employee or
director of the Company eligible to receive an assumed or replacement award as
contemplated in Sections 6 and 8 and any person to whom an offer of employment
has been extended. "Company" includes any entity that is directly or indirectly
controlled by the Company, as determined by the Committee; provided however,
that ISOs (as defined in Section 8(a)) may only be granted to an employee of Air

Group or one of its "subsidiary corporations" (as that term is defined in
Section 424(f) of the Code). A director who is not an employee of the Company (a
"nonemployee director") is eligible to receive payments as set forth in Section
8(d) for payment of such nonemployee director's annual retainer (exclusive of
any per-meeting fees, committee chair fees or expense reimbursements) ("Annual
Retainer").

5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN

      Subject to the provisions of Section 6 of the Plan, the aggregate number
of shares of common stock, $1.00 par value, ("Common Stock") of Air Group
("shares") which may be awarded and delivered to participants under the Plan
shall not exceed the sum of (i) 1,700,000, (ii) any shares available for future
awards, as of the effective date of this Plan, under the Alaska Air Group, Inc.
1999 Long-Term Incentive Equity Plan (the "1999 Equity Plan") and (iii) any
shares that are represented by awards under the 1999 Equity Plan which, after
the effective date of this Plan, are forfeited, expired, are cancelled without
delivery of shares, or otherwise result in the return of shares to the Company.

      Notwithstanding any provision to the contrary, the following award limits
shall apply (subject to adjustment as provided in Section 6 below):

      (a)   In no event shall a participant receive an award or awards during
            any one (1) calendar year covering in the aggregate more than
            300,000 shares;

      (b)   In no event shall there be granted during the term of the Plan
            shares pursuant to Section 8(c) of the Plan covering more than fifty
            percent (50%) of the total shares authorized under this Plan.

      Shares subject to awards under the Plan which expire, terminate or are
canceled prior to exercise or, in the case of awards granted under Section 8(c),
do not vest shall thereafter be available for the granting of other awards.
Shares otherwise issuable pursuant to an award that have been exchanged by a
participant as full or partial payment to the Company in connection with any
award under the Plan also shall thereafter be available for the granting of
other awards. In instances where an SAR or other award is settled in cash, the
shares covered by such award shall remain available for the granting of other
awards. Likewise, the payment of cash dividends and dividend equivalents paid in
cash in conjunction with outstanding awards shall not be counted against the
shares available for issuance.

      Any shares issued under the Plan may consist in whole or in part of
authorized and unissued shares or of treasury shares, and no fractional shares
shall be issued under the Plan. Cash may be paid in lieu of any fractional
shares in settlements of awards under the Plan.

6. ADJUSTMENTS AND REORGANIZATIONS

      In the event of any stock dividend, stock split, combination or exchange
of shares, merger, consolidation, spin-off, recapitalization or other
distribution (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting shares or share price, the Committee
shall make a proportionate adjustment, as the Committee in its sole discretion
deems equitable or appropriate, with respect to: (a) the aggregate number of
shares that may be issued under the Plan; (b) each outstanding award made under
the Plan; and (c) the exercise price per share for any outstanding stock
options, SARs or similar awards under the Plan.

7. FAIR MARKET VALUE

      Fair Market Value for all purposes under the Plan shall mean the closing
price of a share of Common Stock as reported daily on the New York Stock
Exchange (or, if the shares are not listed on the New York Stock Exchange, such
other established national securities exchange or association that the Committee
shall designate). If no sales of shares were made on such date, the closing
price of a share as reported for the preceding day on which a sale of shares
occurred shall be used.

8. AWARDS

      The Committee shall determine the type or types of award(s) to be made to
each participant. Awards may be granted singly, in combination or in tandem.
Awards also may be made in combination or in tandem with, in replacement of, as
conversion or substitution for, as alternative to, or as the payment form for,
grants or rights under any other compensation plan or individual contract or
agreement of the Company including those of any acquired entity. The Committee
shall have the right to substitute or assume awards under this Plan in
connection with mergers, reorganizations, separations, or other transaction to
which Section 424(a) of the Code applies, provided such substitutions and
assumptions are permitted by Section 424 of the Code and the regulations
promulgated thereunder. The types of awards that may be granted under the Plan
are:

            (a) Stock Options -- This is a grant of a right to purchase a
      specified number of shares during a specified period as determined by the
      Committee. Each stock option shall be in such form and shall contain such
      terms and conditions as the Committee shall deem appropriate. Stock
      options granted under the Plan may either be incentive stock options
      ("ISOs") which are qualified under Section 422 of the Code, with respect
      to grants to participating employees, or nonqualifed stock options
      ("Nonqualified Options"), with respect to grants to participating
      employees or other eligible Plan participants. All stock options shall be
      separately designated ISOs or Nonqualified Options at the time of grant.
      Stock options converted or substituted under the Plan for any or all
      outstanding stock options and stock appreciation rights held by employees,
      consultants, advisors or other option holders of an acquired entity are
      referred to in this Plan as "Conversion Options." The purchase price per
      share for each stock option shall be not less than 100% of Fair Market
      Value on the date of grant (except (1) for Conversion Options and (2) if a
      stock option is granted retroactively in tandem with or as a substitution
      for an SAR, the exercise price may be no lower than the exercise price per
      share for such tandem or replaced SAR). The exercise price for a stock
      option shall be paid in full by the optionee at the time of the exercise
      in cash or such other method permitted by the Committee, including (i)
      tendering (either actually or by attestation) shares, (ii) authorizing a
      third party to sell the shares (or a sufficient portion thereof) acquired
      upon exercise of a stock option and assigning the delivery to the Company
      of a sufficient amount of the sale proceeds to pay for all the shares
      acquired through such exercise, or (iii) any combination of the above.

                  (I) Incentive Stock Options. Notwithstanding anything to the
            contrary herein, each ISO granted pursuant to this Plan shall
            include the following provisions: ISOs may be granted only to
            individuals who are employees of the Company at the time the ISO is
            granted. The purchase price per share for each ISO (except for
            Conversion Options) shall not be less than 100% of Fair Market Value
            on the date of grant. No employee shall be eligible for an ISO if,
            on the date of grant, such employee owns (including ownership
            through the attribution provisions of Section 422 of the Code) in
            excess of 10% of the total combined voting power of all classes of
            stock of the Company unless the following two conditions are met:
            (A) the option price for the shares of Common Stock subject to the
            ISO is at least 110% of the Fair Market Value on the date of grant
            and (B) the option agreement under which the stock option was
            granted provides that the term of the ISO does not exceed five
            years. No employee shall be eligible to receive ISOs (under this
            Plan and all other stock option plans of the Company) that are
            exercisable for the first time in any calendar year with respect to
            shares with a Fair Market Value (determined at the date of grant) in
            excess of $100,000. No ISO shall be exercisable after the expiration
            of ten (10) years from the date it was granted. An ISO shall not be
            transferable except by will or by the laws of descent and
            distribution and, during the lifetime of the option holder, shall be
            exercisable only by the option holder.

            (b) SARs -- This is a right to receive a payment, in cash and/or
      shares, equal to the excess of the Fair Market Value of a specified number
      of shares on the date the SAR is exercised over the Fair Market Value on
      the date the SAR was granted (except that if an SAR is granted
      retroactively in tandem with or in substitution for a stock option, the
      designated Fair Market Value shall be no lower than the exercise price per
      share for such tandem or replaced stock option).

            (c) Stock Awards -- This is an award made or denominated in shares
      or units equivalent in value to shares. All or part of any stock award may
      be subject to conditions and restrictions established by the Committee
      which may be based on continuous service with the Company or the
      achievement of performance goals related to profits, profit growth,
      profit-related return ratios, cash flow or stockholder returns, or other
      performance goals as the Committee deems appropriate, where such goals may
      be stated in absolute terms or relative to comparison companies. Stock
      awards based on continuous service will vest over a period of three years
      or more. Stock awards based on performance measures will vest over a
      period of one year or more, as the Committee may determine.

            (d) Stock Payments - This is payment of a portion or all of the
      Annual Retainer to be paid to a nonemployee director in shares of Common
      Stock (a "Stock Payment") rather than cash for services rendered as a
      director of the Company. On the first business day following the Company's
      Annual Meeting of Stockholders, or such later date during the period
      beginning on the date immediately following the Company's Annual Meeting
      of Stockholders for that year and ending immediately prior to the
      Company's Annual Meeting of Stockholders in the next succeeding calendar
      year (the "Plan Year") that a nonemployee director is elected or appointed
      to the Board, a Stock Payment will be made to each nonemployee director
      for a fixed portion of such nonemployee director's Annual Retainer. The
      fixed portion shall be determined by the Board. A nonemployee director may
      also make an election to increase the amount of the Stock Payment up to
      the full amount of such nonemployee director's Annual Retainer. Such an
      election shall be made on a form provided by the Committee and returned to
      the Committee on such date as the Committee shall establish, but in any
      case no later than the first day of the Plan Year to which the election
      relates. The election form shall state the amount by which the nonemployee
      director desires to reduce the cash portion of his or her Annual Retainer,
      which shall be applied toward the purchase of Common Stock on the same
      date that the Stock Payment is made; provided, however, that no fractional
      shares may be purchased. Any funds withheld but not able to be applied to
      the purchase of whole shares shall be paid to the nonemployee director in
      cash. A nonemployee director shall not be allowed to change or revoke any
      election for the relevant year, but may change his or her election for any
      subsequent Plan Year.

            (e) Cash Award - This is an award paid in cash upon the achievement,
      in whole or part, of performance goals relating to one or more of the
      following business criteria within the meaning of Section 162(m) of the
      Code: profitability, revenue, cost, cash flow, earnings, share price,
      return on equity, return on assets, return on invested capital, economic
      value added, market share, productivity, safety, customer satisfaction,
      on-time performance or other objective operational measures. Any of these
      criteria may be used to measure the performance of the Company as a whole
      or any business unit or division of the Company. These criteria shall be
      calculated under a methodology established in writing by the Committee
      prior to the issuance of an award. Such writing may be a plan or other
      arrangement established by the Committee hereunder, which shall set forth
      the terms and conditions of the performance-based cash awards, provided
      that such plan or arrangement shall not expand the class of individuals
      entitled to participate under the 2004 Long-Term Incentive Plan, add to
      any of the performance criteria described above, or increase the maximum
      amount payable to any single participant with respect to any calendar
      year, as set forth below. The maximum amount of any cash payment under a
      plan or arrangement established by the Committee hereunder to any single
      participant with respect to any calendar year will not exceed twice the
      participant's base salary as in effect on the last day of the preceding
      fiscal year and in no event will exceed $1,000,000.

9. DIVIDENDS AND DIVIDEND EQUIVALENTS

      The Committee may provide that any awards under the Plan earn dividends or
dividend equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to a participant's account. Any crediting of
dividends or dividend equivalents may be subject to such restrictions and
conditions as the Committee may establish, including reinvestment in additional
shares or share equivalents.

10. DEFERRALS AND SETTLEMENTS

      Payment of awards may be in the form of cash, stock, other awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee also may require or permit
participants to elect to defer the issuance of shares or the settlement of
awards in cash under such rules and procedures as it may establish under the
Plan. It also may provide that deferred settlements include the payment or
crediting of interest on the deferral amounts, or the payment or crediting of
dividend equivalents where the deferral amounts are denominated in shares.

11. TRANSFERABILITY AND EXERCISABILITY

      Awards granted under the Plan shall not be transferable or assignable
other than by will or the laws of descent and distribution, except to the extent
permitted by the Committee, in its sole discretion. However, any award so
transferred shall continue to be subject to all the terms and conditions
contained in the instrument evidencing such award.

12. EVIDENCE OF AWARDS

      Awards under the Plan shall be evidenced by instruments as approved by the
Committee that set forth the terms, conditions and limitations for each award
which may include the term of an award, the provisions applicable in the event
the participant's employment terminates, and the Committee's authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind any award.

13. ACCELERATION AND SETTLEMENT OF AWARDS

      In the event of a proposed sale, merger, consolidation, reorganization,
liquidation, or upon a change in control of the Company as defined by the Board
of Directors, the Committee shall have the discretion to provide for the
acceleration of vesting and for settlement, including cash payment or assumption
and/or conversion, of an award granted under the Plan. Such provision for the
acceleration of vesting and for settlement, including cash payment or assumption
and/or conversion may be set forth in an award agreement made pursuant to this
Plan. However, the granting of awards under the Plan shall in no way affect the
right of the Company to adjust, reclassify, reorganize, or otherwise change its
capital or business structure, or to merge, consolidate, dissolve, liquidate,
sell or transfer all or any portion of its businesses or assets In addition, the
Committee shall have the discretion to provide for the acceleration of vesting
of awards made pursuant to this Plan in the event of a participant's death or
total disability, or a participant's termination or retirement from the Company,
each as defined by the Committee.

14. PLAN AMENDMENT

      The Plan may be amended only by the Board as it deems necessary or
appropriate to better achieve the purposes of the Plan; provided, however, that
to the extent required by the IRS Code or the rules of the SEC or NYSE,
stockholder approval shall be required for any amendment of the Plan. In
addition, stockholder approval shall be required for any material amendment to
the Plan.

15. TAX WITHHOLDING

      The Company shall have the right to deduct from any settlement of an award
made under the Plan, including the delivery or vesting of shares, a sufficient
amount to cover withholding of any federal, state or local taxes required by
law, or to take such other action as may be necessary to satisfy any such
withholding obligations, including requiring Plan participants to tender a cash
payment in satisfaction of the withholding obligation. The Committee may, in its
discretion and subject to such rules as it may adopt, permit participants to use
shares to satisfy required tax withholding, and such shares shall be valued at
the Fair Market Value as of the settlement date of the applicable award.

16. OTHER BENEFIT AND COMPENSATION PROGRAMS

      Unless otherwise specifically determined by the Committee and not
inconsistent with the terms of any benefit plan, severance program or severance
pay law, settlements of awards received by participants under the Plan shall not
be deemed a part of a participant's regular, recurring compensation for purposes
of calculating payments or benefits from any Company benefit plan, severance
program or severance pay law. Further, the Company may adopt other compensation
programs, plans or arrangements as it deems appropriate or necessary.

17. UNFUNDED PLAN

      Unless otherwise determined by the Board, the Plan shall be unfunded and
shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish any fiduciary relationship between the
Company and any participant or other person. To the extent any person holds any
rights by virtue of an award granted under the Plan, such rights (unless
otherwise determined by the Committee) shall be no greater than the rights of an
unsecured general creditor of the Company.

18. USE OF PROCEEDS

      The cash proceeds received by the Company from the issuance of shares
pursuant to awards under the Plan shall constitute general funds of the Company.

19. REGULATORY APPROVALS

      The implementation of the Plan, the granting of any award under the Plan,
and the issuance of shares upon the exercise or settlement of any award shall be
subject to the Company's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the awards granted
under it or the shares issued pursuant to it.

20. FUTURE RIGHTS

      No person shall have any claim or rights to be granted an award under the
Plan, and no participant shall have any rights under the Plan to be retained in
the employ of the Company. A person granted an award under the Plan shall have
no rights as a stockholder with respect to shares covered by such person's award
until the date of the issuance of shares to the person pursuant to the terms of
such award.

21. SUCCESSORS AND ASSIGNS

      The Plan shall be binding on all successors and assigns of a participant
including, without limitation, the estate of such participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the participant's creditors.

                             ALASKA AIR GROUP, INC.

                      2004 LONG-TERM INCENTIVE EQUITY PLAN

                             STOCK OPTION AGREEMENT

      Option Agreement, effective _______, between Alaska Air Group, Inc. ("Air
Group"), a Delaware corporation, and ____________ ("Optionee"), an employee of a
wholly owned subsidiary of Air Group (the "Company").

      WHEREAS, Section 3 of the 2004 Long-Term Incentive Equity Plan ("the
Plan") authorizes the Compensation Committee of the Air Group Board of Directors
(the "Committee") to designate the individuals who are to receive stock options
and the terms and conditions pertaining to such options;

      NOW, THEREFORE, PURSUANT TO SUCH AUTHORITY, IT IS AGREED AS FOLLOWS:

      1.    Air Group hereby grants to Optionee a nonqualified stock option to
            purchase _____ shares of the Common Stock of Air Group, subject to
            the provisions of the 2004 Long-Term Incentive Equity Plan and this
            Option Agreement. The date of the grant of the option is ______. The
            exercise price is ____ per share, which is the closing price of the
            Common Stock on the date of grant. The option will expire on
            _______________, and shall not be exercisable after that date.

      2.    By this reference, this Agreement embodies and adopts the terms of
            the 2004 Long-Term Incentive Equity Plan.

      3.    Optionee acknowledges and agrees that:

            (a)   The options shall vest over four (4) years from the date of
                  grant and become exercisable in four (4) equal annual
                  installments.

            (b)   The option is not transferable; however, Optionee may
                  designate a beneficiary on forms prescribed by and filed with
                  Air Group.

            (c)   If the employment of Optionee with the Company (as defined in
                  the Plan, including Air Group and subsidiaries) ceases due to
                  retirement or early retirement with the Committee's approval,
                  then the option will continue to vest and remain exercisable
                  until the earlier of the option expiration date or three (3)
                  years after employment ceases. For purposes of this agreement,
                  an employee is considered to have retired if, on the date of
                  termination any of the following applies: (i) he or she is at
                  least 55 years of age and has five years of service with the
                  Company or its subsidiaries, (ii) is at least 60 years of age,
                  or (iii) is a participant in and is entitled to commence a
                  benefit under a Company-sponsored defined benefit plan. In the
                  case of termination for any other reason, the option will be
                  canceled immediately on the date employment ceases. In the
                  case of death or Total Disability (as defined below) the
                  options shall fully vest and will remain exercisable for three
                  years after employment ceases. In order to qualify for the
                  beneficial tax treatment afforded to incentive stock options,
                  the option must be exercised within three months after
                  termination of employment for reasons other than death or
                  Total Disability. Total Disability means a mental or physical
                  impairment of the Option which is expected to result in death
                  or which has lasted or is expected to last for a continuous
                  period of 12 months or more and which causes the optionee to
                  be unable, in the opinion of the Company and two independent
                  physicians, to perform his or her duties for the Company and
                  to be engaged in any substantial gainful activity. Total
                  Disability will be deemed to have occurred on the first day
                  after the Company and the two independent physicians have
                  furnished their opinion of total disability to the Committee.
                  Employment shall be deemed to continue while the Optionee is
                  on military leave, sick leave or other bona fide leave of
                  absence (as determined by the Committee), except that
                  employment shall not be deemed to continue beyond the first 90
                  days of such leave unless the Optionee's reemployment rights
                  are guaranteed by statute or by contract.

            (d)   The Committee may at any time determine that the option shall
                  not be exercised for less than 100 shares at any time.

            (e)   The option exercise price must be paid in full at the time of
                  exercise in cash or by check, or by (i) tendering (actually or
                  by attestation) shares of Common stock already owned by
                  Optionee, (ii) delivery of a properly executed exercise
                  notice, together with irrevocable instructions to (a) a
                  brokerage firm designated by Air Group to deliver promptly to
                  Air Group the aggregate amount of sale or loan

                  proceeds to pay the option exercise price and any withholding
                  tax obligations that may arise in connection with the exercise
                  and (b) Air Group to deliver the certificates for such
                  purchased shares directly to such brokerage firm, all in
                  accordance with the regulations of the Federal Reserve Board;
                  or (iii) such other considerations as the Committee may permit
                  or any combination of the foregoing.

            (f)   In order to obtain certain tax benefits afforded to incentive
                  stock options under Section 422 of the Internal Revenue Code
                  of 1986, as amended from time to time, an optionee must hold
                  the shares issued upon the exercise of an incentive stock
                  option for two years after the date of grant of the option and
                  one year from the date of exercise. An optionee may be subject
                  to the alternative minimum tax at the time of exercise.

                  A disqualifying disposition of an incentive stock option award
                  or the exercise of nonqualified stock options may create
                  substantial ordinary income to Optionee, and Optionee hereby
                  authorizes the Company to make any appropriate withholding for
                  income taxes, including the retention of shares otherwise
                  issuable upon exercise of the option.

                  Tax advice should be obtained when exercising any option and
                  prior to the disposition of the shares issued upon the
                  exercise of any option.

            (g)   In the event of any Change of Control (as defined on Exhibit A
                  attached hereto) the option shall automatically accelerate so
                  that the option shall, immediately prior to the effective date
                  of the Change in Control, become 100% vested, unless
                  two-thirds of the Incumbent Directors (as defined on Exhibit
                  A) then in office shall have specifically determined in
                  advance to maintain in effect the vesting schedule set forth
                  in Section 3(a) of this Option Agreement.

                  The option shall terminate and cease to remain outstanding
                  immediately following the consummation of such Change of
                  Control, except to the extent assumed by the successor
                  corporation.

                  Unless the Board shall determine otherwise, the vesting
                  schedule set forth in Section 3(a) of this Option Agreement
                  shall not be accelerated by reason of any corporate
                  reorganization, merger, consolidation, transfer of assets,
                  liquidating distribution or other transaction entered into
                  solely by and among Air Group and/or its subsidiaries,
                  provided such transaction has been approved by two-thirds of
                  the Incumbent Directors then in office.

            (h)   To the extent that the aggregate fair market value (determined
                  as of the grant date) of the shares with respect to which the
                  incentive stock option is exercisable for the first time by
                  you during any calendar year (under this option and all other
                  incentive stock options you hold) exceeds $100,000, the excess
                  portion will be treated as nonqualified stock options, unless
                  the Internal Revenue Service changes the rules and regulations
                  governing the $100,000 limit for incentive stock options.

            (i)   If incentive stock options are granted under this Option
                  Agreement to persons who own more than ten percent of the
                  total combined voting power of all securities of Air Group,
                  the term of such incentive stock options shall not exceed five
                  years and the exercise price shall be not less than 110% of
                  the fair market value of the Common Stock on the date of
                  grant. This provision shall control notwithstanding any
                  contrary terms contained in this Option Agreement.

      4.    Nothing in the Plan or this Option Agreement shall confer upon
            Optionee any right to continue in the employ of the Company or its
            subsidiaries or to interfere in any way with the right of the
            Company to terminate his or her employment or other relationship
            with the Company at any time.

AT THE PRESENT TIME, AIR GROUP HAS AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THE SHARES THAT WILL BE ISSUED UPON EXERCISE OF THIS OPTION. AIR
GROUP INTENDS TO MAINTAIN THIS REGISTRATION BUT HAS NO OBLIGATION TO DO SO. IN
THE EVENT THAT SUCH REGISTRATION IS NO LONGER EFFECTIVE, YOU WILL NOT BE ABLE TO
EXERCISE THE OPTION UNLESS EXEMPTIONS FROM REGISTRATION UNDER FEDERAL AND STATE
SECURITIES LAWS ARE AVAILABLE; SUCH EXEMPTIONS FROM REGISTRATION ARE VERY
LIMITED AND MIGHT BE UNAVAILABLE.

IN WITNESS WHEREOF, Air Group and Optionee have executed this Agreement.

Optionee,                                           Alaska Air Group

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                                    EXHIBIT A

                                   DEFINITIONS

"Change in Control" means:

(a) Air Group's Stockholders shall approve and there shall occur:

            (i)   any consolidation or merger of Air Group in which Air Group is
                  not the continuing or surviving corporation or pursuant to
                  which shares of Common Stock would be converted into cash,
                  securities or other property, other than a merger of Air Group
                  in which the holders of Air Group's Common Stock immediately
                  prior to the merger have the same proportionate ownership of
                  common stock of the surviving corporation immediately after
                  the merger;

            (ii)  any sale, lease, exchange or other transfer (in one
                  transaction or a series of related transactions) of all, or
                  substantially all, the assets of Air Group or Alaska; or

            (iii) the adoption of any plan or proposal for the liquidation or
                  dissolution of Air Group or Alaska;

(b)   at any time during a period of two consecutive years, individuals who at
      the beginning of such period constituted the Board "Incumbent Directors")
      shall cease for any reason to constitute at least a majority thereof,
      unless each new director during such two-year period was nominated or
      elected by the Incumbent Directors, or a committee of the Incumbent
      Directors (new directors nominated or elected by the Incumbent Directors
      or by a committee of the Incumbent Directors shall also be deemed to be
      Incumbent Directors); or

(c)   an "Person (as such term is used in Section 13(d) of the Exchange Act)
      shall, as a result of a tender or exchange offer, open market purchases,
      privately negotiated purchases or otherwise, have become the beneficial
      owner (within the meaning of Rule 13d-3 under the Exchange Act), directly
      or indirectly, of then-outstanding securities of Air Group ordinarily (and
      apart from rights accruing under special circumstances) having the right
      to vote in the election of directors ("Voting Securities," to be
      calculated as provided in paragraph (d) of such Rule 13d-3 in the case of
      rights to acquire Common Stock) represent 20% or more of the combined
      voting power of the then-outstanding Voting Securities.

                                      # # #

                             ALASKA AIR GROUP, INC.

                      2004 LONG-TERM INCENTIVE EQUITY PLAN

                      RESTRICTED STOCK UNIT AWARD AGREEMENT

Award Date                 Number of Units                    Final Vesting Date

      This Restricted Stock Unit Award Agreement ("Agreement") is made and
entered into as of the 6th day of December, 2004 by and between Alaska Air
Group, Inc. (the "Company") and __________ ("Participant"), an employee of a
wholly owned subsidiary of the Company.

      The Company has on the Award Date specified above granted to Participant
an award (the "Award") to receive that number of restricted stock units (the
"Restricted Stock Units") indicated above in the box labeled "Number of Units,"
each Restricted Stock Unit representing the right to receive one share of Alaska
Air Group Common Stock (the "Common Stock"), subject to certain restrictions and
on the terms and conditions contained in this Award and the Alaska Air Group,
Inc. 2004 Long-Term Incentive Equity Plan (the "Plan"). A copy of the Plan is
available upon request. In the event of any conflict between the terms of the
Plan and this Award, the terms of the Plan shall govern. Any capitalized terms
not defined herein shall have the meaning set forth in the Plan. This Agreement
shall be effective when signed by the Company and Recipient.

      1. Rights of the Participant with Respect to the Restricted Stock Units.

            a) No Shareholder Rights. The Restricted Stock Units granted
pursuant to this Award do not and shall not entitle Participant to any rights of
a shareholder of Common Stock, including without limitation voting rights or
dividends. The rights of Participant with respect to the Restricted Stock Units
shall remain forfeitable at all times prior to the date on which such rights
become vested, and the restrictions with respect to the Restricted Stock Units
lapse, in accordance with Section 2, 3 or 4.

            b) Conversion of Restricted Stock Units; Issuance of Common Stock.
No shares of Common Stock shall be issued to Participant prior to the date on
which the Restricted Stock Units vest, and the restrictions with respect to the
Restricted Stock Units lapse, in accordance with Section 2, 3 or 4. Neither this
Section 1(b) nor any action taken pursuant to or in accordance with this Section
1(b) shall be construed to create a trust of any kind. After any Restricted
Stock Units vest pursuant to Section 2, 3 or 4, and further provided that
Participant has fully complied with all of his or her obligations under this
Agreement and the Plan, the Company shall promptly cause to be issued in
book-entry form, registered in Participant's name or in the name of
Participant's legal representatives, beneficiaries or heirs, as the case may be,
Common Stock in payment of such vested whole Restricted Stock Units. The value
of any fractional Restricted Stock Unit shall be paid in cash at any time the
Common Stock is delivered to Participant in payment of the Restricted Stock
Units.

      2. Vesting. Subject to the terms and conditions of this Award, the
Restricted Stock Units shall vest, and the restrictions with respect to the
Restricted Stock Units shall lapse, on the third anniversary of the Award Date
if Participant remains continuously employed by the Company.

      3. Early Vesting Upon Change in Control. Notwithstanding the other vesting
provisions contained in Section 2, but subject to the other terms and conditions
set forth herein, upon the effective date of a Change in Control (as defined in
Exhibit A attached hereto), all of the Restricted Stock Units shall become
immediately and unconditionally vested and exercisable, and the restrictions
with respect to all of the Restricted Stock Units shall lapse, unless two-thirds
of the Incumbent Directors (as defined in Exhibit A) then in office shall have
specifically determined in advance to maintain in effect the vesting schedule
set forth in Section 2 of this Agreement.

      4. Forfeiture or Early Vesting Upon Termination of Employment

            a) Retirement. If the employment of Participant with the Company
(including its subsidiaries) ceases due to retirement or early retirement (with
the Committee's approval in the case of early retirement), then the Award will
continue to vest for three years following the date of retirement according to
the vesting schedule set forth in this Award. For Purposes of this agreement, an
employee is considered to have retired if, on the date of termination any of the
following applies: (i) he or she is at least 55 years of age and has five years
of service with the Company or its subsidiaries, (ii) is at least 60 years of
age, or (iii) is a participant and is entitled to commence a benefit under a
Company-sponsored defined benefit plan.

            b) Total Disability. In the case of death or Total Disability (as
defined below) the Award will fully vest. Total Disability means a mental or
physical impairment of the Participant which is expected to result in death or
which has lasted or is expected to last for a continuous period of 12 months or
more and which causes the Participant to be unable, in the opinion of the
Company and two independent physicians, to perform his or her duties for the
Company and to be engaged in any substantial gainful activity. Total Disability
will be deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total disability to the
Committee.

            c) Other Termination. In the case of termination for any other
reason, the Award will be canceled and forfeited immediately on the date
employment ceases.

            d) Leave of Absence. Employment shall be deemed to continue while
the Participant is on military leave, sick leave or other bona fide leave of
absence (as determined by the Committee), except that employment shall not be
deemed to continue beyond the first 90 days of such leave unless the Optionee's
reemployment rights are guaranteed by statute or by contract.

      5. Restriction on Transfer. The Restricted Stock Units and any rights
under this Award may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of by Participant otherwise than by will or by the laws of
descent and distribution, and any such purposed sale, assignment, transfer,
pledge, hypothecation or other disposition shall be void and

unenforceable against the Company. Notwithstanding the foregoing, Participant
may, in the manner established by the Committee, designate a beneficiary or
beneficiaries to exercise the rights of Participant and receive any property
distributable with respect to the Restricted Stock Units upon the death of
Participant.

      6. Adjustments to Restricted Stock Units.

            a) In the event that any stock dividend, stock split, combination or
exchange of shares, merger, consolidation, spin-off, recapitalization or other
distribution (other than normal cash dividends) of Company assets to
stockholders, or any other similar corporate transaction or event affecting the
Common Stock would be reasonably likely to result in the diminution or
enlargement of any of the benefits or potential benefits intended to be made
available under the Award (including, without limitation, the benefits or
potential benefits of provisions relating to the vesting of the Restricted Stock
Units), the Committee shall, in such manner as it shall deem equitable or
appropriate in order to prevent such diminution or enlargement of any such
benefits or potential benefits, make adjustments to the Award, including
adjustments in the number and type of shares of Common Stock Participant would
have received upon vesting of the Restricted Stock Units; provided, however,
that the number of shares into which the Restricted Stock Units may be converted
shall always be a whole number.

      7. Income and Payroll Tax Matters.

            a) Participant is ultimately and solely liable and responsible for
all taxes owed in connection with the Award and the Company does not make any
representation or undertaking regarding the treatment of any tax withholding in
connection with the grant or vesting of the Award or the subsequent sale of
shares of Common Stock issuable pursuant to the Award. In order to comply with
all applicable federal, state or local income tax laws or regulations, the
Company may take such action as it deems appropriate to ensure that all
applicable federal, state or local payroll, withholding, income or other taxes
are withheld or collected from Participant.

            b) In order to comply with recently enacted legislation affecting
deferred compensation plans, Participant agrees that some provisions of this
Agreement may need to be adjusted, to specify more clearly the distribution
dates specified in Section 1(b) above for the Common Stock to be issued under
this Restricted Stock Unit, or to add other provisions that may be required to
ensure that this Restricted Stock Unit Agreement operates in compliance with the
new legislation, and with the regulations to be issued thereunder.

            c) In accordance with the terms of the Plan, and such rules as may
be adopted by the Committee under the Plan, the Company will withhold, at the
applicable federal supplemental wage withholding rate, a portion of the shares
of Common Stock otherwise to be delivered having a fair market value equal to
the amount of such taxes in order to fulfill Participant's federal income tax
withholding obligations arising from the receipt of Common Stock in payment of
the Restricted Stock Units, or, if applicable, the lapse of restrictions
relating to the Restricted Stock Units. Any state income taxes or other payroll
taxes, such as FICA or Medicare, due may also be withheld from the shares
delivered or from subsequent paychecks, at the Company's discretion. The Company
will not deliver any fractional share of Common Stock but will pay, in lieu
thereof, the fair market value of such fractional share. As a condition and

term of this Award, Participant shall not make an election under Section 83(b)
of the Internal Revenue Code with respect to all or any portion of the Award.

      8. Miscellaneous.

            a) This Award does not confer on Participant any right with respect
to the continuance of any relationship with the Company or its subsidiaries, nor
will it interfere in any way with the right of the Company to terminate such
relationship at any time. Furthermore, nothing herein creates any contractual or
other right to receive future grants of awards.

            b) The Company shall not be required to deliver any shares of Common
Stock upon vesting of any Restricted Stock Units until the requirements of any
federal or state securities laws, rules or regulations or other laws or rules
(including the rules of any securities exchange) as may be determined by the
Company to be applicable are satisfied.

            c) An original record of this Award and all the terms hereof,
executed by the Company, is held on file by the Company. To the extent there is
any conflict between the terms contained in this Award and the terms contained
in the original held by the Company, the terms of the original held by the
Company shall control. If Participant does not sign and return this Agreement,
the Company is not obligated to provide Participant with any benefit hereunder
and may refuse to issue shares of Common Stock to Participant under this Award.
This Agreement replaces and supersedes that Restricted Stock Unit Agreement
dated November 10, 2004 (the "Prior Agreement"). Participant hereby waives all
of Participant's rights under the Prior Agreement and agrees that the Prior
Agreement shall terminate in full upon Participant's execution of this
Agreement.

IN WITNESS WHEREOF, the Company and Participant have executed this Agreement.

PARTICIPANT                                             COMPANY

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Please provide your current COMAIL and home address below:

COMAIL
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HOME
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ADDRESS
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                                    EXHIBIT A

                                   DEFINITIONS

"Change in Control" means:

(a) Air Group's Stockholders shall approve and there shall occur:

            (i)   any consolidation or merger of Air Group in which Air Group is
                  not the continuing or surviving corporation or pursuant to
                  which shares of Common Stock would be converted into cash,
                  securities or other property, other than a merger of Air Group
                  in which the holders of Air Group's Common Stock immediately
                  prior to the merger have the same proportionate ownership of
                  common stock of the surviving corporation immediately after
                  the merger;

            (ii)  any sale, lease, exchange or other transfer (in one
                  transaction or a series of related transactions) of all, or
                  substantially all, the assets of Air Group or Alaska; or

            (iii) the adoption of any plan or proposal for the liquidation or
                  dissolution of Air Group or Alaska;

(b)   at any time during a period of two consecutive years, individuals who at
      the beginning of such period constituted the Board "Incumbent Directors")
      shall cease for any reason to constitute at least a majority thereof,
      unless each new director during such two-year period was nominated or
      elected by the Incumbent Directors, or a committee of the Incumbent
      Directors (new directors nominated or elected by the Incumbent Directors
      or by a committee of the Incumbent Directors shall also be deemed to be
      Incumbent Directors); or

(c)   an "Person (as such term is used in Section 13(d) of the Exchange Act)
      shall, as a result of a tender or exchange offer, open market purchases,
      privately negotiated purchases or otherwise, have become the beneficial
      owner (within the meaning of Rule 13d-3 under the Exchange Act), directly
      or indirectly, of then-outstanding securities of Air Group ordinarily (and
      apart from rights accruing under special circumstances) having the right
      to vote in the election of directors ("Voting Securities," to be
      calculated as provided in paragraph (d) of such Rule 13d-3 in the case of
      rights to acquire Common Stock) represent 20% or more of the combined
      voting power of the then-outstanding Voting Securities.

                                      # # #

 

Basic Info X:

Name: 2004 LONG-TERM INCENTIVE PLAN
Type: Incentive Plan
Date: Feb. 25, 2005
Company: ALASKA AIRLINES INC
State: Alaska

Other info: