ALASKA AIR GROUP, INC. 2004 LONG-TERM INCENTIVE PLAN PERFORMANCE STOCK UNIT AWARD AGREEMENT

Exhibit 10.1

ALASKA AIR GROUP, INC.

2004 LONG-TERM INCENTIVE PLAN

PERFORMANCE STOCK UNIT AWARD AGREEMENT

THIS PERFORMANCE STOCK UNIT AWARD AGREEMENT (this “ Agreement ”) dated _______ , by and between ALASKA AIR GROUP, INC. , a Delaware corporation (“ Air Group ”), and _______ (the “ Participant ”) evidences the award of stock units (the “Award” ) granted by Air Group to the Participant as to the number of stock units (the “ Stock Units ”) first set forth below.

Vesting ¹ The Award shall vest and become no forfeitable as provided in Section 2 of the attached Terms and Conditions of Performance Stock Unit Award (the “ Terms ”).

The Award is granted under the Alaska Air Group, Inc. 2004 Long-Term Incentive Plan (the “ Plan ”) and subject to the Terms attached to this Agreement (incorporated herein by this reference) and to the Plan. The Award has been granted to the Participant in addition to, and not in lieu of, any other form of compensation otherwise payable or to be paid to the Participant. Capitalized terms are defined in the Plan if not defined herein. The parties agree to the terms of the Award set forth herein. The Participant acknowledges receipt of a copy of the Terms, the Plan and the Prospectus for the Plan.

Notwithstanding any other provision herein, the number of shares of Common Stock payable in respect of the Stock Units is subject to reduction as provided in Section 6 below.

TERMS AND CONDITIONS OF PERFORMANCE STOCK UNIT AWARD

1. Stock Units . As used herein, the term “stock unit” shall mean a non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent to one outstanding share of Air Group’s Common Stock (subject to adjustment as provided in Section 6 of the Plan) solely for purposes of the Plan and this Agreement. The Stock Units shall be used solely as a device for the determination of the payment to eventually be made to the Participant if such Stock Units vest pursuant to this Agreement. The Stock Units shall not be treated as property or as a trust fund of any kind.

2. Vesting .

(a) Performance-Based Vesting . Subject to Section 7 below, the Award shall vest and become nonforfeitable based on the achievement of the performance goals established by the Committee and set forth on Exhibit A attached hereto for the Performance Period identified on the cover page of this Agreement. The number of Stock Units that vest and become payable under this Agreement shall be determined based on the level of results or achievement of targets for each of the Performance Goals as set forth in Exhibit A. Except as otherwise expressly provided in Exhibit A, any Stock Units subject to the Award that do not vest in accordance with Exhibit A shall terminate as of the last day of the Performance Period.

(b) Possible Acceleration . Notwithstanding any other provision herein or in the Plan, the Award, to the extent not then vested, shall become fully vested if either (i) the Participant’s employment with the Company is terminated by the Company without Cause or by the Participant for Good Reason and such termination occurs at any time within the period commencing six (6) months before a Change of Control and ending twenty-four (24) months after such Change of Control, or (ii) a Change of Control occurs and the Award is not assumed or otherwise continued following the Change of Control and is to be settled in accordance with Section 13 of the Plan. (For these purposes, the terms “Cause,” “Change of Control” and “Good Reason” shall have the meanings ascribed to them in Exhibit B attached hereto.) For purposes of clarity, the number of Stock Units that shall be vested after giving effect to the foregoing accelerated vesting provision shall equal the number of Stock Units set forth on the cover page of this Agreement (subject to adjustment under Section 6 of the Plan), and the performance-based vesting provisions of Section 2(a) shall be disregarded. In the event that, upon the occurrence of a Change of Control, the Participant is entitled to accelerated vesting of the Award pursuant to clause (i) this Section 2(b) in connection with a termination of the Participant’s employment prior to such Change of Control, the Award, to the extent it had not vested and was cancelled or otherwise terminated upon or prior to the date of such Change of Control solely as a result of such termination of employment, shall be reinstated and shall automatically become fully vested.

3. Continuance of Employment . The vesting schedule requires continued employment or service through each applicable vesting date as a condition to the vesting of the applicable installment of the Award and the rights and benefits under this Agreement. Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Participant to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Section 7 below or under the Plan.

Nothing contained in this Agreement or the Plan constitutes an employment or service commitment by Air Group, affects the Participant’s status as an employee at will who is subject to termination without cause, confers upon the Participant any right to remain employed by or in service to the Company, interferes in any way with the right of the Company at any time to terminate such employment or services, or affects the right of the Company to increase or decrease the Participant’s other compensation or benefits. Nothing in this paragraph, however, is intended to adversely affect any independent contractual right of the Participant without his consent thereto.

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4. Limitations on Rights Associated with Units . The Participant shall have no rights as a stockholder of Air Group, no dividend rights and no voting rights, with respect to the Stock Units and any shares of Common Stock underlying or issuable in respect of such Stock Units until such shares of Common Stock are actually issued to and held of record by the Participant. No adjustments will be made for dividends or other rights of a holder for which the record date is prior to the date of issuance of the stock certificate.

5. Restrictions on Transfer . Neither the Award, nor any interest therein or amount or shares payable in respect thereof may be sold, assigned, transferred, pledged or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily. The transfer restrictions in the preceding sentence shall not apply to (a) transfers to Air Group, or (b) transfers by will or the laws of descent and distribution.

6. Timing and Manner of Payment of Stock Units; Possible Reduction in Payment . On or as soon as administratively practical following the date on which any Stock Units subject to this Award vest pursuant to the terms hereof (and in all events within two and one-half months after such vesting event), Air Group shall deliver to the Participant a number of shares of Common Stock (either by delivering one or more certificates for such shares or by entering such shares in book entry form, as determined by Air Group in its discretion) equal to the number of Stock Units subject to this Award that vest on such date, unless such Stock Units terminate prior to such date pursuant to Section 7. Air Group’s obligation to deliver shares of Common Stock or otherwise make payment with respect to vested Stock Units is subject to the condition precedent that the Participant or other person entitled under the Plan to receive any shares with respect to the vested Stock Units deliver to Air Group any representations or other documents or assurances that the Committee may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements. The Participant shall have no further rights with respect to any Stock Units that are paid or that terminate pursuant to Section 7.

Notwithstanding the foregoing provisions, in the event that (a) any Stock Units vest and become payable hereunder and (b) the number of shares of Common Stock payable in respect of the aggregate number of such vested units and all other then-vested and payable units subject to awards of performance stock units granted under the Plan on or about the Award Date exceeds the number of shares then available for issuance under the Plan and any other stockholder-approved equity compensation plan of Air Group, the number of shares available for issuance under the Plan shall be allocated on a pro rata basis to the Award and each other such performance stock unit award based on the number of shares then payable under such awards so that all such shares available for issuance shall be issued in respect of such awards and, in such event, the Participant shall have no rights with respect to any vested Stock Units that would otherwise have been paid but are not actually paid as a result of such proration. For purposes of the preceding sentence, the number of shares “available for issuance” under a plan shall exclude any shares issued in respect of an award granted under that plan on or before the date hereof and any shares subject to a then-outstanding award granted u