Alaska Air 3Q Profit Jumps 22 Percent

By ALLISON LINN

SEATTLE – Alaska Air Group Inc. said Thursday that third-quarter profits rose 22 percent, beating Wall Street expectations, and added that it expects to be one of the few U.S. airline companies to post a full-year profit.

Alaska Air Group’s stock fell 16 cents, or less than 1 percent, to close at $29.34 in trading Thursday on the New York Stock Exchange.

Analyst Raymond Neidl with Calyon Securities said the company’s stock, which rose directly after earnings were released, likely fell later in the day because of a more general drop in the market. The Dow Jones industrials fell 133.03, or 1.28 percent, to 10,281.10 Thursday.

“The whole sector got hit across the board,” he said. “… I think it was just a market move.”

Net income for the three months ended Sept. 30 was $90.2 million, or $2.71 per share, up from $74 million, or $2.29 per share, in the year-earlier period.

Not counting the effect of fuel-hedge accounting adjustments and other items, income was $71.5 million, or $2.16 per share, versus $50.7 million, or $1.58 per share, in the same quarter last year.

The Seattle company, which includes Alaska Airlines and Horizon Air, said revenue rose 10.1 percent to $845.7 million, from $768.2 million in the same period a year earlier.

On average, analysts polled by Thomson Financial were looking for earnings, excluding special items, of $2.12 per share on revenue of $823.3 million.

In a conference call with analysts, Alaska Chief Executive Bill Ayer said the company expects to post a modest profit for the full year. The company said it expects to break even in the current fourth quarter.

For the third quarter, Ayer said the company benefited from a fuel-hedging strategy, allowing Alaska to contain costs despite a dramatic increase in fuel prices. But he said the hedging position is only buying the company some time, and if fuel prices continue to soar he expects the entire industry will be forced to increase fares.

Ayer also said the company also was working to fix a slew of problems that dogged the company over the summer, resulting in what he conceded was below-standard service. He said problems began when a companywide restructuring, which has included hundreds of layoffs and other cost-cutting, coincided with an increase in summer business.

Alaska is continuing the cost-cutting push to better compete with low-cost carriers and other competitors, but Ayer said it also knows that it needs to find a balance between lowering costs and treating customers well.

Alaska in the past has been known for its above-average customer service, and many U.S. airlines have faced customer grousing for cutting things like pillows and in-flight meals to save cash.

During the quarter, passenger traffic on Alaska Airlines rose 0.6 percent, even as capacity shrunk 3.2 percent. Operating revenue per available seat mile increased 12.4 percent. Load factor, or the percentage of seats filled, rose 3 percentage points from a year ago to 79 percent.

Horizon Air’s traffic jumped nearly 13.6 percent on a 9.8 percent gain in capacity. Horizon’s operating revenue per available seat mile edged up half a percent, and load factor rose 2.6 percentage points to 75 percent.

For the nine months ended Sept. 30, Alaska reported net income of $27.1 million, or 93 cents per share, on revenue of $2.24 billion. That compares with earnings of $29.6 million or 98 cents per share, on revenue of $2.07 billion, in the first nine months of 2004.