Alaska Air Revenue Surges

Mirroring broader airline industry trends, Alaska Air Group ( ALK) said its second-quarter net income exceeded analysts' expectations as a result of higher fares and passenger occupancy rates.

The Seattle-based carrier reported earnings of $55.5 million, or $1.38 a share, compared with $17.4 million, or 56 cents a share, in the same quarter a year earlier. Excluding charges, the company would have earned $60.3 million, or $1.50 a share, compared with $24.7 million, or 78 cents a share, last year.

Revenue was $873 million, up from $765.5 million. Analysts polled by Thomson Financial expected earnings of $1.29 a share on revenue of $854.5 million.

Alaska's operating revenue per available seat mile increased 9.5%, as yield per passenger mile rose 7.6% to 13.99 cents, reflecting higher ticket prices. Meanwhile, the airline's passenger load factor increased 1.4 percentage points to 79.3%. Shares rose $1.46, or 4.07% on Tuesday, to close at $37.36.

The quarter's results "are a strong indication that our plan is working, and we expect the third quarter to be even stronger than the second," said CEO Bill Ayer. However, he added that Alaska "can't bank on continued fare increases to sustain our profitability for the long term."

For the quarter, the operating cost per available seat mile, excluding fuel costs and restructuring charges and adjustments, fell 2.1% to 7.92 cents. Ayer noted the carrier is committed to a plan to reduce CASM to 7.25 cents, but the longer-term goal is to have a number below 7 cents.

The lowest-cost airlines, including Southwest ( LUV), AirTran ( AAI) and Frontier ( FRNT), are all in the 6-cent to 7-cent range.

Alaska's capacity grew at a 5.2% rate in the quarter, while passenger traffic rose by 7.2%. The airline, which is converting to an all- Boeing fleet by shedding its remaining MD-80s, said it expects capacity growth of 6% for the remainder of the year.

The carrier's regional subsidiary Horizon Air reported pretax income of $9.7 million, compared with $11.1 in the same quarter a year earlier. Excluding fuel hedge adjustments, Horizon's pretax income would have been $10.2 million for the quarter, down from $10.7 million last year.

Alaska had cash and short-term investments of roughly $1.1 billion as of June 30.

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