Alaska Air Narrows 1Q Loss

SEATTLE -- Alaska Air Group Inc. said Thursday its first-quarter loss narrowed from a year ago, when the company incurred a hefty charge, but high fuel costs and stiffening competition on West Coast routes pose significant challenges.

Bill Ayer, chairman and chief executive of the Seattle-based parent company of Alaska Airlines and Horizon Air, said it will be forced to keep ticket prices low to attract customers.

Despite signs of flattening demand in some markets, Ayer said he expects results to improve later this year as the company works to defend its turf.

"Although a lot can change as the year plays out, our forecast still has us on track for improved profitability for the full year in spite of the current quarter's results," Ayer said in a conference call with analysts.

For the quarter ended March 31, Alaska Air said its loss narrowed to $10.3 million, or 26 cents per share, from a loss of $79.1 million, or $2.36 per share, during the same period last year.

Excluding adjustments for fuel hedging and first-quarter 2006 costs stemming from the retirement of Alaska Airlines' MD-80 fleet, the company reported a loss of $15.8 million, or 39 cents per share, compared with a profit of $2.8 million, or 8 cents per share, in the same period a year ago.

Analysts polled by Thomson Financial forecast a loss of 32 cents per share in the most recent quarter. Thomson estimates usually exclude special items.

Revenue grew 3 percent to $759.4 million from $735.4 million last year. Analysts expected revenue of $767.9 million.

Occupancy of Alaska Airlines planes was down in the quarter, as traffic fell slightly, while the airline increased the number of flights. Horizon Air saw traffic grow, but not enough to fill the increased number of seats available.

Ayer said Alaska Airlines, the nation's ninth-largest carrier, is facing tougher competition.

Delta Air Lines increased flights from Los Angeles to Mexico; Southwest Airlines Co. is expected to begin flying out of San Francisco; and other carriers are poised to begin flying new nonstop routes between Seattle and Milwaukee, Kansas City, Austin, Texas, and Mexico City this summer.

Alaska Airlines is adding flights from Portland, Ore., to Boston and Orlando in September.

Alaska Air Group's fuel costs, including gains and losses from fuel hedging, rose 13 percent to $184.9 million in the first quarter, up from $163.1 million a year ago.

The company has been buying about half of its fuel in advance, locking in prices to shelter itself from potential increases.

Those fuel hedges have helped Alaska Air tremendously during several quarters in the past year, but the company has saved less money as the cost of hedge contracts has grown alongside fuel prices.

Shares of Alaska Air Group fell 22 cents to $35.58 Thursday on the New York Stock Exchange. The company's shares have traded between $33.60 and $45.85 over the last 52 weeks.

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