Alaska Air Group (NASDAQ: ALK) is a US airline with service primarily in the western U.S -- 62% of the company's flights originate or terminate in Seattle. As the tenth largest airline in the US, the group is a holding company for legacy carrier Alaska Airlines and regional airline Horizon Air, and had $3.1 billion in total revenues and carried approximately 17.6m passengers in 2007. Only 8% of Horizon flights and 15% of Alaskan flights were international. 
The company turned a profit in 2007, after a year of losses in 2006. Between June 2007 and May 2008, the company was the tenth US Airline in terms of domestic revenue passenger miles and commanded 2.7% of market share by that same metric. Much of this profit was due to hedging crude (from which jet fuel is derived) at the right time -- the company has hedged 50% of its projected fuel consumption needs for the third and fourth quarters of 2008 at $78.03 and $76.64 per barrel respectively, while crude prices reached $147 in June 2008.
After reporting a quarterly loss in the second quarter of 2008, Alaska Airlines entered into a series of cost cutting measures including layoffs.  As the industry continues to see more consolidation among different airlines, Alaska Airlines has not entered into one of the industry alliances (such as the Star Alliance) or closed revenue sharing agreements. Instead, the airline maintains partnerships with select airlines within different alliances. Alaska Airlines had approximately $1.2 billion and $1.1 billion of long-term debt outstanding as of the ends of December 31, 2007 and 2006 respectively. This debt is almost exclusively used to finance flight equipment and property costs. 
Alaska Air Group is the parent company of both Alaska Airlines and a regional airline known as Horizon Air. Alaska Airlines carried 17.6m passengers on 115 jet aircraft in its mainline operations in 2007 primarily on its North/South service within the Western U.S., Canada, and Mexico.  Horizon Air carried 7.6m revenue passengers on 21 jets and 49 turboprop aircraft in 2007, of which 24% connected to Alaskan Airlines flights. 
|Operating Revenues (in $millions)||2007||Change||2006||Change||2005|
|Freight and mail||97.8||0.5%||97.3||3.4%||94.1|
|Total mainline operating revenues||3,506.0||5.1%||3,334.4||12.1%||2,975.3|
|Total Operating Income||212.0||To Profit||-87.3||To Loss||166.5|
|Total Net Income||125.0||To Profit||-52.6||-791.5%||-5.9|
In the 2007 reporting year, the group added 4% to its available seat miles and 3.5% to its revenue passenger miles; however, because its load factor declined by 0.4 percentage points, some of its added capacity was not completely used. 
|Mainline Operating Statistics||2007||2006||% Change|
|Revenue Passenger Miles (in MM)||18,451||17,822||3.5|
|Available Seat Miles (in MM)||24,208||23,278||4|
|Passenger Load Factor||76.20%||76.60%||-0.4|
|Yield per passenger mile ($)||0.1152||0.115||0.3|
|Operating Revenue per ASM||0.1052||0.1054||0.2|
|Passenger Revenue per ASM||0.1054||0.1192||-11.6|
Although the company reports that Alaska Airlines carried 17.6m revenue passengers in 2007 and Horizon Airlines carried 7.6m revenue passengers in the same year, the company does not report financial data separately for the two airlines that it holds. While the geographic destinations of Horizon Air are simply described at 92% US and 8% Canada, the geographical destinations of Alaska Air are more evenly spread among the West Coast, flights to Alaska, Hawaii, and transcontinental flights.
|Passenger Traffic by Market||2007||2006|
|Within Alaska and between Alaska and the US||21%||20%|
|Other, including transcontinental and Hawaii||18%||20%|
In order to avoid having to pay the full cost of jet fuel in the case of price increases of crude oil, Alaska Airlines hedges its fuel, or purchases the right to purchase fuel at designated crude barrel prices (as jet fuel prices are highly correlated with crude oil prices and jet fuel is not sold on major commodity markets) at a later date for a specific price, regardless of what the actual price of the fuel might be at that later date. Alaska Airlines has hedged 50% of its projected fuel consumption needs for the third and fourth quarters of 2008 at prices for $78.03 and $76.64 per barrel respectively. Until that point, the company had hedged 39% of its fuel at prices for $67.53 per barrel of crude oil in 2008 and realized gains of $44.9 million, $87.0 million, and $108.8 million in 2007, 2006, and 2005, respectively, on fuel hedge contracts that settled during the period.  This strategy of fuel hedging is also employed by competitor Southwest Airlines Company (LUV) and was, to a great extent, responsible for the rise in net income that Alaska and Southwest had in July 2008, when crude oil prices reached $147.00.
Alaska Airlines had approximately $1.2 billion and $1.1 billion of long-term debt outstanding at the ends fo December 31, 2007 and 2006 respectively. The company continues to use debt to finance the purchase of new aircraft as well as to update its current fleet.  Between 2007 and 2008, the company had a debt to equity ratio of 1.44, aproximately the same as that the company had between 2003 and 2008.  This debt is almost exclusively used to finance their flight equipment and property costs. The company has historically been able to secure financing for the debt; however, there has always been the risk of not being able to finance their debt.  If there is an increase in interest rates for the financing of the debt that the company has, the company estimates that costs will also increase. Furthermore, many businesses are having more trouble finding financing for their operations. If the credit crunch advances, they company states that there is alway a possibility that the company will not be able to refinance its debt.
There have been a number of different signs of consolidation across the commercial airline industry over the past several months as evidenced by Delta and Northwest.  Furthermore, airlines such as British Airways, American Airlines and Iberia are finding new ways to work together through close revenue sharing agreements.  Many airlines have begun to consolidate in order to increase revenues by offering passengers additional destinations while reducing costs by coordinating marketing and flights.  Once these consolidations are made, additional revenues have been seen by airlines such as Air-France KLM, which has been able to both increase revenues and reduce costs through their merger. 
Airline 'alliances' which allow customers to earn and spend frequent flier miles on partner airlines such as the Star Alliance, Skyteam, and One Air Alliance are also offering increasingly more communal benefits to their customers. As of 2008, the Star Alliance carried 24% of revenue passengers, the Skyteam 21%, Oneworld 17%, and all other airlines 38% of all revenue passengers.  The Star Alliance has seen revenue increases in many of its segments since inception because passengers travel more frequently with member airlines in order to earn award travel with their member airline. 
Alaska Airlines does not belong to any of these alliances although it does have a number of partnerships for mileage, but these partnerships are not within one single commercially marketed alliance. Alaska Air does not clearly publish the breakdown of the benefits that the company's marketing partnerships with other airlines; however, the revenues are included within the Other section of revenue. What is clear, however, is that members of these alliances command significant market share. Although the airline's revenue from its mileage program increased in 2007 to $227.6m from $194.2m in 2006, the airline will lose the synergetic revenues that are often seen within the airline industry through consolidation.   The company does not discuss the potential benefits or costs of joining an alliance.
Between June 2007 and May 2008, Alaska Airlines was the tenth largest domestic airline and commands 2.7% of the market share in the United States in terms of domestic revenue passenger miles.  Although this list shows its market share in the US domestic market, it should be noted that the company depends on several key markets for its sales. 62% of all of its flights originate or terminate in Seattle and other significant markets include Los Angeles, Portland, and Anchorage. 
There are several factors that are key in distinguishing this company from its competitors. One of the most widely publicized are the differences in fuel hedging that the company has undertaken. Having hedged 50% of its fuel consumption for the rest of 2008, the airline will remain more isolated than any airline that has not protected itself on the same scale against fluctuating oil prices.  Another key difference between this company and many other airlines is that the company's revenues are very concentrated (to 92.3%) in passenger revenues primarily within several key markets (62% of all flights originate or terminate in Seattle). Alaska Airlines and Horizon Air together carry 48% of all passengers traveling to or from Seattle-Tacoma, whereas their closest competitors, Southwest and United, carry 8.71% and 8.60% of customers through this airport. 
|Airline||Revenue Passenger Miles (Billions)||Traffic Pct Change||Available Seat Miles (Billions)||Capacity Pct Change||Load Factor (%)||Utilization Pct Change|
|American Airlines (AMR)||11.85||(3.1%)||13.86||(1.2%)||85.5%||(1.7%)|
|Delta Air Lines Inc. (DAL)||11.69||0.2%||13.68||0.7%||85.4%||(0.5%)|
|United Airlines (UAUA)||10.34||(3.6%)||11.97||(0.6%)||86.5%||(2.6%)|
|Continental Airlines (CAL)||7.71||(0.9%)||9.16||1.4%||84.1%||(2.0%)|
|Southest Airlines (LUV)||6.88||0.7%||8.80||5.7%||78.8%||(3.9%)|
|Northwest Airlines (NWA)||6.56||1.4%||7.48||2.4%||87.7%||(0.9%)|
|US Airways Group (LCC)||5.67||(0.5%)||6.67||0.4%||85.0%||(0.8%)|
|JetBlue Airways (JBLU)||2.30||2.3%||2.77||3.2%||79.5%||(0.7%)|
|AirTran Holdings (AAI)||1.89||15.5%||2.23||13.0%||84.7%||1.8%|