But 2008 Looks To Be Tough, CEO Says

On Thursday, Alaska Air Group said it managed to post a fourth-quarter profit for 2007 due to special gains... but overall, the news was grim, as fuel prices took a heavy toll on the carrier's earnings.

USA Today reports Alaska Air Group -- parent company to Alaska Airlines, and its Horizon Air regional subsidiary -- posted a $7.4 million profit for the quarter, a marked improvement over the $11.6 million hit the airline took for the same period in 2006. Revenue also increased by eight percent, to $853.4 million, due primarily to increased passenger traffic.

That sounds like good news... but when you take into account fuel hedging and special charges against the 2006 numbers, Alaska actually posted a loss of $17.9 million, or 46 cents per share, on the year. Analysts had put Alaska's estimated loss at 32 cents per share.

"It's frustrating to report a fourth-quarter adjusted loss in what has been a solid year relative to other carriers," Alaska CEO Bill Ayer told investors Thursday. "The loss was driven primarily by skyrocketing fuel costs combined with fares that have not kept pace."

When it comes to fuel prices, Alaska fared better than several other airlines, due to aggressive hedging. Alaska bought half its fuel in advance for the last quarter, at an average of $62.27 a barrel -- far below market prices that hovered near $100 per barrel. That saved the company $29 million for the period.

Company CFO Brad Tilden said the airline's attempts to hike fares to match higher fuel costs had mixed results. Some markets bore a $20 fare increase, though others were resistant to any increases.

Ayer says he expects high fuel prices, combined with a softening US economy and increased competition, to make the going tougher in some markets in 2008; conversely, strong demand for the airline's flights to Hawaii, and increasing use of more fuel-efficient Boeing 737 aircraft, are bright spots for Alaska's outlook.

When the subject turned to mergers, Ayers stressed Alaska intends to remain independent... unless the right offer comes along.

"It's not as though we have blinders on ... and we don't want to hear about what's going on around us," Ayer said. "We understand we're part of the industry, and we need to be aware of what's happening, and if that does produce opportunities for us, then we'll be looking at that."

FMI: www.alaskaairlines.com