UPDATE 1-Alaska Air loss widens as fuel costs soar

Thu Apr 24, 2008 9:22am EDT

(Adds fleet and job cuts at subsidiary)

WASHINGTON, April 23 (Reuters) - Alaska Air Group Inc (ALK.N), parent of Alaska Airlines, reported a wider quarterly loss on Thursday as revenue could not keep pace with skyrocketing fuel costs.

Fuel costs for the first quarter rose 45 percent, or $89 million, to $282 million. Fuel is the company's largest expense, and Alaska Air Group's problems mirror the rest of the industry.

"Given the magnitude of this increase and the softening economy, we're taking aggressive actions now to improve our business and profitability," said Bill Ayer, chairman and chief executive.

The company announced cost cuts and revenue enhancements that it hopes will boost full-year pretax income by about $150 million.

First, it said it would further reduce the size of the fleet at its regional Horizon Air subsidiary, which will result in "some job losses." It hopes to address those losses through attrition.

Also, within two years, Horizon Air will go from a fleet of 65 aircraft and three aircraft types to a fleet comprised of only larger, 76-seat Bombardier Inc (BBDb.TO) Q400s, the company said.

Alaska Airlines and Horizon Air are evaluating routes to remove frequency in underperforming markets and redeploy in more profitable areas. The airlines anticipate shifting 3 percent to 5 percent of existing network capacity to generate new revenue in the fall schedule.

Alaska Air Group also will raise various fees later this spring and summer, including charging $25 for a second checked bag for most passengers.

Alaska Airlines and Horizon Air will fly more direct routes, establish procedures for using only one engine during taxiing, and use more ground-based power systems rather than aircraft auxiliary power while at the gate. Alaska Air Group hopes to save 1 million gallons of jet fuel per month through these procedures.

The company reported a first-quarter net loss of $35.9 million, or 97 cents per share, compared with a net loss of $10.3 million, or 26 cents per share, a year earlier. Both periods include adjustments resulting from mark-to-market fuel hedge accounting.

Excluding the impact of these adjustments, the company would have reported a loss of $36.3 million, or 98 cents per share, compared with a loss of $15.8 million, or 39 cents per share, a year earlier.

Wall Street analysts had expected a loss of 95 cents per share, according to Reuters Estimates.

Revenue rose to $839 million from $759 million a year earlier. Mainline passenger traffic increased 11.3 percent on a capacity increase of 6.8 percent. Load factor increased by 3 percentage points to 74.4 percent. (Reporting by John Crawley, editing by Gerald E. McCormick and John Wallace)

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