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

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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

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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.

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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).

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(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.

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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 disc