Alaska Air pulls itself closer to profitability

Though major U.S. airlines have reported billions of dollars in losses for the quarter, Seattle-based Alaska Air Group is faring better than most.

Yesterday, Alaska Air, parent of Alaska Airlines and regional carrier Horizon Air, reported only a relatively small net loss for 2004. If one-time charges are excluded, it achieved an operating profit for the first time since 1999.

The news was welcomed by officials of the unions that are currently in difficult labor negotiations with the company. Alaska has asked for $112 million in concessions from employees.

In the most contentious of the contract negotiations, with Alaska Airlines baggage handlers, the company provided some breathing room by extending for 60 days a Jan. 31 deadline for deciding whether to outsource the work.

Separately, executives said Alaska may order three 737s from Boeing this year.

Company executives, while pleased with the progress toward financial viability, insisted that the small operating profit amounts to a break-even outcome that doesn't lessen the need for the wage and benefit concessions.

"After adjusting for unusual items, 2004 breaks a four-year trend of losses for Alaska," said company president and chief executive Bill Ayer in a conference call with Wall Street analysts. "It's gratifying to see that we are in the black by even a small amount. The actions we are taking are working.

"However, a break-even company cannot survive in the long run," he added.

For the fourth quarter of 2004, Alaska Air reported a net loss of $44.9 million, or $1.66 per diluted share, compared with a net loss of $16.1 million, or $0.60 per diluted share in the fourth quarter of 2003.

For comparison, American Airlines lost $387 million in the fourth quarter; Continental lost $206 million; Northwest lost $412 million; and Delta lost $2.2 billion.

For the full year, Alaska Air reported a net loss of $15.3 million, or $0.57 per share. The previous year, thanks in part to government compensation, the company posted profit of $13.5 million, or $0.51 per share.

Alaska's 2004 losses included a restructuring charge due to severance payments for the 900 employees whose layoff it announced in October. It also included a large one-time accounting charge connected with the company's fuel-hedging position.

Excluding such one-time items, the company's profit after tax for 2004 was $5.2 million.

Chief financial officer Brad Tilden said that, on the same basis and adjusting for accounting policy changes to make the numbers exactly comparable, the company had lost $31 million in 2003; $68 million in 2002; $88 million in 2001, and $20 million in 2000.

An operating profit of $5.2 million on $2.7 billion in revenue amounts to a 0.2 percent profit margin. "It's break-even, basically," Tilden said.

On that same basis, the last time the company made an operating profit was in 1999, when it earned $129 million or a 6 percent profit margin — "a healthy profit in a healthy industry," Tilden said.

In contrast, Ayer during the conference call described the airline business today as "a difficult and permanently changed industry."

To cope with the new environment, Ayer is pressing for labor deals to dramatically reduce the company's costs. Thursday, he pushed out one immediate labor crisis.

Alaska had said it might outsource the jobs of 500 baggage handlers at Seattle-Tacoma International Airport and had set a month-end deadline. But in a letter to the International Association of Machinists (IAM) union, the company said it would not lay off any of the baggage handlers for 60 days while talks continue.

"Our preference remains to achieve a negotiated settlement" with the IAM, said Dennis Hamel, vice president of employee services, in an e-mail update to Alaska staff yesterday.

Representatives of the Air Line Pilots Association and the Association of Flight Attendants welcomed yesterday's earnings results.

"This is really positive considering what our company has been through. We're encouraged," said pilots association spokeswoman Tara Elkins. "We feel we're poised for growth."

On this, management agrees.

Alaska Airlines is taking delivery this year of three new Renton-built Boeing 737-800s. On the conference call, CFO Tilden said that the company's board has given authority to acquire three more of the jets.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com