ALASKA AIR GROUP, INC.ALK
ALASKA AIR GROUP, INC. Stock Compensation Disclosure
STOCK-BASED COMPENSATION PLANS
The Company has various equity incentive plans under which it may grant stock awards to directors, officers and employees. The Company also has an employee stock purchase plan (ESPP).
The table below summarizes the components of total stock-based compensation:
(in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Stock options | $ | — | $ | 1 | $ | 2 | |||||||||||
| Stock awards | 42 | 31 | 39 | ||||||||||||||
| Deferred stock awards | 2 | 1 | 1 | ||||||||||||||
| Employee stock purchase plan | 25 | 19 | 18 | ||||||||||||||
| Stock-based compensation | $ | 69 | $ | 52 | $ | 60 | |||||||||||
| Tax benefit related to stock-based compensation | $ | 17 | $ | 13 | $ | 14 | |||||||||||
The Company will recognize $42 million of stock-based compensation for non-vested awards over a weighted-average period of 1.5 years. Unrecognized expense for non-vested stock options was immaterial as of December 31, 2025.
The Company is authorized to issue 31 million shares of common stock under these plans, of which 11 million shares remain available for future grants of either options or stock awards as of December 31, 2025.
Stock options
Stock options to purchase common stock are granted at the fair market value of the stock on the date of grant. The stock options granted have terms of up to ten years. No stock options were granted in 2025 or 2024.
The fair value of each option grant in 2023 was estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions used to estimate the fair value of options granted included an expected volatility of 46%, an expected term of 6 years, a risk-free interest rate of 3.64%, and no expected dividend yield. The weighted-average grant date fair value per share was $16.77 and the estimated fair value of options granted was $1 million.
The expected market price volatility and expected term are based on historical results. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected dividend yield is based on the estimated weighted average dividend yield over the expected term. The expected forfeiture rates are based on historical experience.
The tables below summarize stock option activity for the year ended December 31, 2025:
| Shares | Weighted- Average Exercise Price Per Share | Weighted- Average Contractual Life (Years) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
Outstanding, December 31, 2024 | 1,101,574 | $ | 62.03 | 4.1 | $ | 5 | |||||||||||||||||
| Exercised | (369,617) | 62.87 | |||||||||||||||||||||
| Canceled | (34,362) | 80.76 | |||||||||||||||||||||
| Forfeited or expired | (435) | 55.74 | |||||||||||||||||||||
Outstanding, December 31, 2025 | 697,160 | $ | 60.66 | 4.0 | $ | 1 | |||||||||||||||||
Exercisable, December 31, 2025 | 656,873 | $ | 61.02 | 3.9 | $ | 1 | |||||||||||||||||
Vested or expected to vest, December 31, 2025 | 697,160 | $ | 60.66 | 4.0 | $ | 1 | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Intrinsic value of option exercises | $ | 4 | $ | 1 | $ | — | |||||||||||
| Fair value of options vested | $ | 2 | $ | 3 | $ | 4 | |||||||||||
Cash received from stock option exercises was $23 million for the year ended December 31, 2025, and was not material in 2024 or 2023.
Stock awards
Restricted Stock Units (RSUs) are awarded to eligible employees and entitle the grantee to receive shares of common stock when vested. The fair value of the RSUs is based on the stock price on the date of grant. Generally, RSUs vest over a defined period of time as stated in the grant agreement from the date of grant, subject to the employee's continued employment or the date of the employee’s retirement eligibility, and expense is recognized accordingly.
Performance Share Units (PSUs) are awarded to certain executives and entitle the grantee to receive shares of common stock if specific performance goals and market conditions are achieved at the end of a three-year period from the grant date. There are several tranches of PSUs which vest when performance goals or market conditions are met. The fair value of performance-based tranches is based on the stock price on the date of grant. The fair value of market-based tranches is estimated using the Monte Carlo simulation model on the date of grant. Potential payouts range from 0% to 200% of a target level.
The following table summarizes information about outstanding stock awards:
| Number of Units | Weighted-Average Grant Date Fair Value | Weighted- Average Contractual Life (Years) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
Non-vested, December 31, 2024 | 1,365,702 | $ | 43.80 | 1.6 | $ | 90 | |||||||||||||||||
| Granted | 943,946 | 64.19 | |||||||||||||||||||||
| Vested | (800,544) | 52.26 | |||||||||||||||||||||
| Forfeited | (98,837) | 52.85 | |||||||||||||||||||||
Non-vested, December 31, 2025 | 1,410,267 | $ | 50.65 | 1.4 | $ | 71 | |||||||||||||||||
Deferred stock awards
Deferred Stock Units (DSUs) are awarded to members of the Board of Directors as part of their retainers. The underlying common shares are issued upon retirement from the Board, but require no future service period. As a result, the entire intrinsic value of the awards is expensed on the date of grant.
Employee stock purchase plan
The ESPP allows employees to purchase common stock at 85% of the stock price on the first day of the offering period or the specified purchase date, whichever is lower. Employees may contribute up to 10% of their base earnings during the offering period to purchase stock. Employees purchased 2.0 million, 2.2 million, and 1.9 million shares in 2025, 2024, and 2023 under the ESPP.
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About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.