By Rob Stapleton
Alaska Journal of Commerce

Alaska Airlines is showing the rest of the industry how to cut losses and make progress in the passenger market, while other major airlines nationally creep through bankruptcy.

On Jan. 26, Alaska Air Group announced the results of its fourth-quarter earnings that resulted in a narrower loss of $20.8 million, or 78 cents a diluted share, compared to a loss of $43.1 million, or $1.62 a share, a year earlier.

Alaska Air Group posted a full-year income of $84.5 million, or $2.65 per diluted share, before the cumulative effect of a maintenance accounting policy change, restructuring activities and refunds of navigation fees, according to company statistics.

"Despite the fact that our first annual profit since 1999 would have been impossible without government compensation, we're proud of the positive steps we've taken over the past 18 months to achieve our companywide cost-management goals," said Bill Ayer, Alaska's chairman and chief executive officer, during the company's online presentation of its annual report.

Citing the use of fuel-hedging programs and sacrifices by the company's employees, Ayer complimented the company for its performance.

Rising fuel prices during 2005 affected other carriers across the nation and within Alaska, resulting in rising fares.

"Sacrifices by our employees, strong revenue performance and the benefit of our fuel- hedging program enabled us to be one of only a couple of major airlines that posted a significant adjusted profit for 2005," Ayer said.

In perhaps one of the toughest challenges of his career, Ayer's efforts and the decision to buy and not lease its aircraft has given the airline cash equity that is allowing the retrofit of five aircraft for Alaska cargo and passenger use. The company will also add 12 new aircraft to its fleet in 2006.

Ayer announced that Alaska Airlines plans to retire two MD-80 aircraft and two Boeing 737s during 2006.

Alaska Airlines cut its maintenance costs by reducing the amount of people needed from 87 to 81 per aircraft.

The company also outsourced its ramp service to Menzies Aircraft Services, and in doing so cut 500 jobs.

While advanced bookings were up by $145 million, costs for fuel also rose by $23 million over the previous year.

Company officials said that the Alaska portion of the airlines passenger enplanements were flat for the fourth quarter, and January figures showed that the airline's load factor - a measure of the number of seats filled on a plane compared with the number of seats available - was up.

The percentage of available seats occupied by fare-paying customers, known as passenger load factor, was 69 percent, up from 68.8 percent a year earlier. In 2005, Alaska Air carried 1.24 million passengers, up from 1.23 million in 2004.

Traffic rose to 1.295 billion revenue passenger miles from 1.249 billion in 2004.

Alaska Airlines' passenger traffic in the fourth quarter increased 1.1 percent and its operating costs per available seat mile, excluding fuel and impairment charges, increased 1.1 percent.

Alaska Airlines operations officials said that rising costs at the Seattle-Tacoma airport were a concern, as were a recent rash of ramp incidents at the airport. One incident in late December resulted in a gash in an aircraft's aluminum skin that caused the cabin to lose pressure in-flight. The plane was able to return to Seattle and land without incident.

This year, Alaska Airlines plans on remodeling their Seattle terminal for easier and faster access for passengers to get to the Alaska gates at Sea-Tac, and has assembled a team to monitor ramp activities for the next year.

Ayer finished the company's presentation with a promise to investors and employees.

"I promise to do everything to make the airline the best in the nation," he said.

Rob Stapleton can be reached at rob.stapleton@alaskajournal.com.