Alaska Air Narrows Loss

The carrier might also retire its fleet of MD-80s.
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Alaska Air

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, sitting on cash after a recent stock offering, says it may use some of the cushion the infusion has provided to retire its fleet of 26 Boeing MD-80s.

Speaking on a conference call Thursday, Alaska Air CEO Bill Ayer said the operating costs for the aircraft are relatively high and that eliminating it from the fleet would mean the company could operate a single type of plane, although he said no decision has been made.

The Seattle-based carrier, which operates 84 Boeing 737s, plans to add a dozen more during 2006.

Alaska also said it lost $33 million, or $1.15 a share, in the quarter ended Dec. 31. The company had a loss of $44.9 million, or $1.66 a share, in the same quarter a year earlier. Alaska said it benefited from fuel-price hedging and from a 6.7% increase in yield, or revenue for each mile flown by a paying passenger.

Excluding the impact of one-time items, including fuel-hedge accounting and restructuring costs, fourth-quarter earnings would have been $600,000, or 2 cents a share. Analysts surveyed by Thomson Financial had expected income of 4 cents. Before items, Alaska reported a loss of $14.3 million, or 53 cents a share, in the fourth quarter of 2004.

At the end of the year, Alaska had $983 million in cash and marketable securities, up $109 million from a year earlier, partly as a result of a $200 million stock sale during the quarter. The added cash, along with a profit of $55 million for the whole year, gives the airline flexibility and more time to pursue its goal of continuing to reduce its cost per available seat mile, Ayer said.

Year-end cost per available seat mile, excluding fuel, was 7.9 cents. The number has come down consistently over the past three years, largely because of cuts in employee costs. Alaska's stated goal is to reduce the cost to 7.25 cents, but CFO Brad Tilden said that figure "is probably not going to be low enough."

He noted, however, that only about 10% of future reductions are slated to come from employee wages. "We're a seven-year-old company, but we have a lot of very complicated processes that we know we can improve," he said.

Ayer said changing processes is difficult and time-consuming, because workers must be convinced that it's worthwhile. "We realize that this is a longer-term proposition than what we thought a year ago," he said. "(But) we have a little more time, courtesy of some good performance here."

Analyst Ray Neidl of Calyon Securities, who doesn't hold any Alaska shares, said he continues to recommend the shares. "We believe that there is much upside potential both on the cost-cutting side and on the revenue side, through solid growth of 5% or 6%, load factor increases and expected healthy yield increases," he said.

Additionally, he said that in terms of fuel hedges, Alaska is the best positioned in the industry behind

Southwest Airlines

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. Alaska said it's 46% hedged at just under $41 a barrel for 2006.

Shares of Alaska slipped 46 cents, or 1.5%, to close at $30.82.