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Old 01-30-2009, 10:04 AM   #1  
vagabond
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Default Oil prices whipsaw Alaska Air Group

From Tacoma News Tribune:

Alaska Air Group released results Thursday for its fourth quarter and the full year that are either distressing or encouraging, depending on how you view them.
The parent company of SeaTac’s Alaska Airlines and Horizon Air showed either a $16.4 million profit for the quarter or a $75.2 million loss.

The difference is what accountants call “special items,” expense and income items that occurred during the quarter because of special, infrequent developments such as radical shifts in oil prices, corporate restructuring and the unscheduled retirement of uneconomical jets.

The company, in its corporate earnings release, led with the $75.2 million loss, but quickly followed with news of the $16.4 million profit.

Alaska Air’s chairman, Bill Ayer, emphasized the profit.

“In a year of unprecedented volatility that included soaring fuel prices and an economic meltdown, we were pleased to eke out a small profit for 2008, excluding special items, and be one of only a few major airlines to do so,” he said in a statement.

Chief gremlin in this good news-bad news scenario were oil prices that rocketed upward to $147 a barrel in midsummer and then quickly fell to the mid-$30-a-barrel level by December.

Airlines trying to guard against predicted oil prices of as high as $200 a barrel bought options, or hedges, to protect themselves from that contingency only to see oil prices free-fall below their hedge values.

Even airlines such as Southwest and Alaska, which had played the oil price game successfully for years, accruing benefits to their bottom lines, got caught in the quirky behavior.

At Alaska, the oil price fluctuations brought these after-tax charges in the fourth quarter: mark-to-market fuel hedge adjustments of $50.3 million and realized losses because of the early termination of fuel hedges for 2009 and 2010 of $31.3 million.

Passenger demand and pricing also went unpredictable in 2008. The year began with steady demand that allowed airlines including Alaska to raise prices through midyear. Then the banking and economic crisis sent business travel down the drain in the later months of the year and frightened leisure travelers into canceling trips.

This whipsaw effect sent prices tumbling again.

At Alaska, mainline passenger traffic declined in the fourth quarter by 4.4 percent, but the company moved quickly and cut capacity by 7.1 percent.

The result was fuller planes in the fourth quarter of 2008 compared with the same quarter in 2007. The percentage of seats filled increased by 2.3 percentage points to 77 percent in the fourth quarter.

Stock market and investment declines and instability made major changes in the airline holding company’s debt-to-capital ratio, which increased to 81 percent at year’s end compared with 70 percent at the end of 2007.

Alaska attributed much of that change to an increase in the company’s unfunded pension liability, which increased some $300 million because of a decline in the value of the pension plan’s assets.

Revenue slid 3.1 percent to $827.1 million, compared with $853.4 million recorded in the same period a year earlier. Analysts had predicted revenue of $819.7 million for the fourth quarter.

For all of 2008, Alaska Air Group said it lost $135.9 million, or $3.74 a share, compared with a profit of $124.3 million, or $3.07 a share, for all of 2007. Twelve-month revenue rose to $3.7 billion, compared with $3.5 billion recorded for all of 2007. Analysts had predicted revenue of $3.62 billion for 2008.

Alaska Airlines and Horizon Air together serve more than 90 cities through their network in Alaska, Hawaii, the continental U.S., Canada and Mexico.

John Gillie: 253-597-8663

blogs.thenewstribune.com/business

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