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Alaska Air Posts Shortfall

The carrier's stock drops 7%.

Alaska Air

(ALK) - Get Alaska Air Group, Inc. Report

missed analysts' estimates as revenue growth slowed toward the end of the third quarter.

The Seattle-based carrier said Tuesday that earnings, excluding special items, totaled $77.9 million, or $1.93 a share, on revenue of $935.7 million. Analysts surveyed by Thomson Financial had expected a profit of $2.10 a share and a top line of $938.5 million. Shares of Alaska dropped 7.2% to $41.36.

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Once the items were counted, Alaska reported a third-quarter loss of $17.4 million, or 44 cents a share. The results included a $58 million charge to buy out five MD-80 leases as the carrier moves to an all Boeing 737 fleet, a $28.6 million charge for a voluntary severance program following contract talks and hedging adjustments.

CEO Bill Ayer said on a conference call that growth in revenue per available seat mile slowed from 6.6% in July to 5.6% in August and 2.3% in September, following the implementation of revised security procedures. "The revenue environment has softened somewhat and bears watching," he said. Nevertheless, he said his company still reported "the best quarterly adjusted net profit in Alaska Air Group's history."

Ayer said the carrier has reduced fourth-quarter capacity growth to between 3.5% and 4%, down from 6%, in order to ensure a smooth operational integration. The airline expects a 2007 capacity increase of about 6%, although the fleet will increase by just three airplanes to 116 planes.

In the quarter, passenger traffic grew 6%, and capacity rose 5.6%. Revenue per available seat mile was up 4.4%, while cost per available seat mile, excluding fuel and one-time items decreased, by 2.7% to 7.33 cents. Horizon Air's RASM grew 9.9%, while costs advanced 8.4%. Load factor was 79.2%.

Alaska ended the quarter with $1.1 billion in cash and short-term investments.