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Old 05-23-2007, 12:48 PM
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Joined APC: May 2006
Position: C-172
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Default Alaska Air Warning of Lower Profits

On a side note, I own shares in Alaska. It's annual shareholder meeting is not in Seattle, but will be at the Hotel Captain "James, I've been everywhere" Cook in Anchorage on June 12. I will be unable to attend, but if anyone in ANC would like to go as my proxy, let me know.

From Seattle PI:

Alaska Air Group, parent of Alaska Airlines and regional carrier Horizon Air, said it expects adjusted net income for the second quarter and full year to be lower than in 2006 as expenses rise.

The Seattle-based airline cited "economic fuel costs, unit revenue trends and forecasted non-fuel unit costs" in a regulatory filing today.

Alaska Air, which operates mainly on the U.S. West Coast, is moving to an all-Boeing 737 fleet on its main routes to save money on fuel, parts and training. The company has reached agreement with a buyer for all 20 of its older and less fuel- efficient McDonnell-Douglas MD-80s, according to the filing. The carrier will lease back most of the aircraft, increasing rental expenses, Alaska Air said.

Alaska Air "has been the most erratic performer among legacy carriers, and has consistently missed, or sometimes wildly exceeded, our EPS estimates," Standard & Poor's analyst Jim Corridore wrote in a research note today, cutting his stock recommendation to "sell" from "buy."

Alaska Air had a net loss of $52.6 million, or $1.39 a share, for 2006, on adjusted net income of $137.7 million, or $3.45. Last year the company reported a second-quarter profit of $55.5 million, or $1.38 a share, on adjusted net income of $60.3 million, or $1.50.

Shares of Alaska Air fell 70 cents, or 2.4 percent, to $28.50 at 11:28 a.m. in New York Stock Exchange composite trading, after touching $28.35 earlier. The stock declined 26 percent this year before today.

Analysts expected Alaska Air to report adjusted net income of $1.50 a share in the second quarter, the average of 10 estimates compiled by Bloomberg. For the full year, adjusted net income was expected to be $3.64 a share, the average of 11 estimates.

Alaska Air spokeswoman Amanda Tobin Bielawski had no immediate comment.

Alaska Air said revenue per seat mile declined 1.5 percent in April, with its Horizon Airlines regional unit outperforming its main Alaska Airlines unit. The percentage of seats filled by paying customers declined by about 1.7 points to 76.9 percent.

Most U.S. airlines have said this year's domestic sales have been crimped by increased capacity and a slowing economy.

Alaska Air's warning "does strengthen our conviction" that rival carrier Southwest Airlines is "similarly incapable" of earnings growth and that industry estimates for the second half of the year "may prove too high," Jamie Baker, a JPMorgan Chase & Co. analyst, said in a note to investors today. He kept his recommendation on the stock at "underweight."

Alaska Air is the nation's ninth largest airline, competing primarily in the western U.S. In recent years the carrier has added routes from western cities to Chicago, New York and Orlando, Florida.

Chief Executive Officer William Ayer said last month that Delta Air Lines Inc.'s new service from Los Angeles to eight of the 10 Mexican cities served by Alaska was putting his company under pressure. Alaska Air also competes with UAL Corp.'s United Airlines and US Airways Group Inc.

Ayer had said April 26 that second-quarter results would improve.

From Reuters:

WASHINGTON - Alaska Air Group Inc. , parent of Alaska Airlines, warned investors Wednesday it expected weaker net income due to softer demand and higher fuel costs, raising fresh concerns about the airline industry's recovery.

The Seattle-based airline said adjusted income for the second quarter and full year would be weaker than corresponding periods last year.

Alaska is only the No. 9 airline flying predominantly in the western United States, but it is the first carrier to formally issue such guidance for the second half of the year. The airline is not the only domestic operator buffeted by weaker demand and higher costs.

"We're less worried about Alaska than we are others," said JP Morgan analyst Jamie Baker in a research note.

Baker added that "on balance" industry estimates for the remainder of 2007 may be too high.

Alaska Air's forecast in a regulatory filing pushed the company's shares down more than 5.4 percent, or $1.59, to $27.61 in afternoon trading on the New York Stock Exchange.


Airline shares overall were mixed after the profit warning and news that U.S. carriers would be granted more service to China, a potentially lucrative boost for those offering Asia service.

Alaska said that mainline passenger revenue fell by 2.8 percent in April due mainly to easing demand and lower average ticket prices. Unit costs for the second quarter, which do not include fuel, are expected to fall by 4 percent to 7.5 cents.

Fuel costs for the quarter are expected to rise by 3.1 cents per gallon, or 4 percent, compared to the same period last year, the company said.

The industry slowly regained footing in 2006 since its worst-ever five-year financial slide, slashing domestic capacity and increasing fares.

However, persistent pressure from sustained higher fuel costs and weaker demand from passengers unwilling to pay higher fares have slowed recovery this year.

Expectations on Wall Street for the sector have diminished in recent months after carriers warned of sagging domestic demand. United Airlines cut domestic capacity last week by 2 percent for the remainder of the year to focus more on international flying.


The industry expects summer travel to rise 3 percent between June and August compared to last year. Summer is traditionally the industry's peak period.

Baker said JP Morgan believes Alaska has been "commendably forthright" as to capacity and yield pressures, a sentiment echoed by Bob Mann, an industry consultant who said others may follow.

"They (Alaska) are being the most transparent about where the domestic market is headed," Mann said.

Southwest Airlines warned in April that unit revenue in the current quarter would fall below last year's high levels. Baker said JP Morgan continues to believe that Southwest is incapable of earnings growth for the time being.

Southwest shares were up 4 cents, or .2 percent, to $14.55 in New York trading.
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