CORRECTED - Higher incentive pay drives up Alaska Air costs

Fri Aug 21, 2009 11:24am EDT

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(Corrects full-year cost forecasts in paragraph 4)

* Cost forecast raised for quarter

* Bag fee seen adding $70 million to annual revenue

NEW YORK, Aug 21 (Reuters) - Alaska Air Group Inc (ALK.N) subsidiaries raised their cost forecasts for the third quarter and 2009, due in part to higher incentive pay forecasts for the rest of the year, the company said in a filing on Friday.

Alaska Airlines said it now expects its third-quarter cost per available seat mile (CASM)-- excluding fuel and special items-- to be 8 cents, higher than the range of 7.8 cents to 7.9 cents it gave in July during its second-quarter earnings call.

On a full-year basis, costs are expected to be 8.2 cents, slightly higher than its 8.1-cent forecast in July.

Based on the carrier's capacity projections, this could result in added costs of $6 million to $12 million for the third quarter and $22.9 million for 2009.

"The guidance for the third quarter and the full-year cost per ASM excluding fuel and special items has increased from our previous guidance on July 23, 2009, primarily as a result of higher wages and benefits and incentive pay forecasts for the remainder of the year," Alaska said in an investor update filed with the U.S. Securities and Exchange Commission.

Alaska Air Group could not be immediately reached for comment.

Alaska Air Group's other carrier, Horizon Air, also cited higher incentive pay for an expected increase in costs.

In the filing, Horizon said it now forecasts third-quarter CASM, excluding fuel costs and fleet transition costs, between 14.5 cents and 14.6 cents.

Horizon had earlier forecast third-quarter costs between 14.4 cents and 14.5 cents. The new figures add between $850,000 and $1.7 million to costs, based on expected third quarter capacity.

JULY RASM BOOSTED BY BAG FEE

Alaska Air Group said its revenue per available seat mile edged 0.7 percent higher in July to 13.07 cents, helped by the implementation of a bag fee in early July.

The fee accrued about $4.9 million in incremental revenue in July, putting the company on track to meet its forecast of $70 million in added revenue, Alaska Air said.

Alaska Air shares rose 1.5 percent, or 34 cents, to $22.91 in early trading on the New York Stock Exchange. (Reporting by Deepa Seetharaman, editing by Gerald E. McCormick)

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