Lower labor costs lift Alaska

Alaska Airlines endured a host of ills after it cut pilots' salaries and laid off hundreds of ramp workers in 2005: Delayed flights, grumpy workers, angry passengers.

Now, finally, the carrier has something positive to show for its actions.

Alaska spent $21.2 million less on wages and benefits in the first quarter of 2006 than during the same period a year ago, a drop of nearly 11 percent.

Those and other cost reductions, combined with strong sales generated by high passenger counts and rising fares, helped Alaska Air Group produce robust results for the first three months of 2006.

Alaska Air Group is the parent company of Alaska Airlines and Horizon Air.

The Seattle-based company posted a net loss of $79.1 million, or $2.36 a share, for the period.

That figure was skewed by several unusual items, including a $131.1 million charge resulting from Alaska Airlines' previously announced decision to hasten the retirement of its fleet of MD-80 jets.

Excluding such one-time events, Alaska had an operating profit of $2.8 million, or 8 cents a share, far better than the 56 cents-a-share loss Wall Street analysts had expected.

"This quarter is almost always our weakest, with most of our profit being produced in the second and third quarters. The last time we posted an adjusted first-quarter profit was in 1999, so we're off to a great start" to 2006, said Bill Ayer, Alaska's chairman and chief executive, during a conference call Thursday with investment analysts and reporters.

The results cheered investors.

Since tumbling to a 2006 low of $29.44 on March 6, Alaska shares have rebounded more than 25 percent.

Ray Neidl, an airline analyst with Calyon Securities, was particularly encouraged by Alaska's ability to increase ticket prices.

"The results are indicative of a fare environment that has allowed [Alaska] to recover a greater portion of its fuel costs," Neidl wrote in a research report to clients.

Alaska's average revenue per passenger was $137 in the first quarter, according to Chief Financial Officer Brad Tilden, compared with $122 per passenger in the same period a year ago.

That's good, because fuel prices continue to climb ever higher.

Alaska pre-purchased nearly half of its fuel for 2006 at prices around $40 to $43 per barrel, considerably below recent crude oil rates of $72 per barrel.

Alaska spent $142 million on fuel in the first quarter, roughly $30 million below what it would have spent had it not secured its hedged contracts.

If crude remains around $70 per barrel for the rest of 2006, Tilden said, the pre-purchased fuel will save Alaska $107 million for the year.

Alaska Air Group sales reached $735.4 million in the quarter, up 14 percent from $642.5 million in the first quarter of 2005.

Alaska and Horizon together transported 5.5 million passengers in the first quarter versus 5.3 million in the same period a year ago.

Alaska increased its spending on contractors, such as the ramp workers from Menzies Aviation who took over ground operations at Seattle-Tacoma International Airport last May, by $4.1 million to $31.9 million.

That was more than offset by Alaska's $21.2 million reduction in wages and benefits, to $175.7 million from $196.9 million a year ago.

Those cost savings were gratifying for Alaska's leadership, which took considerable heat for the problems that followed last year's staffing changes, particularly the shift to Menzies ramp workers at Sea-Tac.

Alaska had the worst on-time performance of any major U.S. airlines last summer. In December, an Alaska jet depressurized and made an emergency return to Sea-Tac, an incident caused when a Menzies worker hit a plane on the ground with a baggage loader but failed to report the damage.

Following that incident and a flurry of other problems in early January, Menzies conducted a 90-day audit of its operations, and both Alaska and Menzies pledged to increase oversight of their Seattle ground operations.

"The 90-day period is just coming to an end, and we are in the process of working with them on their final report," said Glenn Johnson, Alaska's senior vice president of customer service for airports. "I am very, very pleased with the work they have done ... I think we have just taken a huge step forward in terms of both the relationship and their production for us."

David Bowermaster: 206-464-2724 or dbowermaster@seattletimes.com