Alaska Air Group said Thursday that it swung to a fourth-quarter profit due to special gains, though adjusted results reflected a wider...

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Alaska Air Group said Thursday that it swung to a fourth-quarter profit due to special gains, though adjusted results reflected a wider loss than Wall Street had expected, as fares failed to keep up with higher fuel costs.

The parent company of Alaska Airlines and Horizon Air posted a profit of $7.4 million, or 19 cents a share, versus a loss of $11.6 million, or 29 cents a share, a year earlier. Revenue rose 8 percent to $853.4 million.

However, adjusted for fuel hedging as well as special charges and benefits, Alaska Air’s loss widened to $17.9 million, or 46 cents a share, from $3.4 million, or 8 cents a share.

Analysts polled by Thomson Financial had forecast a loss of 32 cents a share on revenue of $845.1 million.

The disappointing results pushed Alaska Air shares down 8 percent, or $1.98, to $22.71 Thursday.

“It’s frustrating to report a fourth-quarter adjusted loss in what has been a solid year relative to other carriers,” Chief Executive Bill Ayer said in a statement. “The loss was driven primarily by skyrocketing fuel costs combined with fares that have not kept pace.”

Though the industry has tried to pass on those higher fuel costs to customers as oil touched new highs, fierce competition has prevented big fare increases.

Chief Financial Officer Brad Tilden said the company has had mixed results raising fares, lifting prices as much as $20 in certain markets while not being able to push through any increases in others.

Alaska Air Group bought half of its fuel in advance last quarter, using contracts that tied its jet-fuel costs to oil prices of $62.27 a barrel, on average, well below the market rate. That saved the company $29 million during the three months ended Dec. 31.

For the full year, the company gained more than $53 million by hedging just over half its fuel at $58.83 a barrel.

Oil prices soared past $100 a barrel recently and have since dropped to about $88 a barrel.

In a conference call with analysts, Ayer said the company expects a softening U.S. economy, high fuel prices and increased competition in some markets to continue in 2008.

But Ayer cited solid demand for flights to Hawaii, a market Alaska Airlines entered last year, and the carrier’s move toward a more fuel-efficient fleet of Boeing 737s as causes for optimism.

The upgraded fleet enabled the carrier to burn the same amount of fuel last year as in 2006, even as it added the Hawaii flights, Tilden said.

“Demand does look fairly good for us,” with advance bookings up about 3 percentage points this month and next, Tilden said. Cuts in West Coast service by competitors such as United Airlines will also help, he said.

United and other major airlines are scaling back in the U.S. to focus on overseas routes, where fares are higher.

Alaska doesn’t offer intercontinental flights, exposing it more fully to a weakening U.S. economy. That means “yield improvement is going to be tough” in 2008, Ayer said on the call.

As competitors ponder merging with other airlines, Ayer said Alaska Air Group plans to remain independent, but he didn’t rule out the possibility of consolidating if it makes sense for the company.

“It’s not as though we have blinders on … and we don’t want to hear about what’s going on around us,” Ayer said. “We understand we’re part of the industry, and we need to be aware of what’s happening, and if that does produce opportunities for us, then we’ll be looking at that.”

Passenger traffic on Alaska Airlines, the nation’s ninth-largest carrier, rose 6 percent and Horizon’s increased 9.7 percent.

Alaska Airlines flew slightly fuller planes, while Horizon’s load factor, or the percentage of paying passengers per available seat, dropped slightly.

Revenue per available seat mile increased at both carriers, 2.7 percent at Alaska Airlines and 3.9 percent at Horizon Air, while costs per available seat mile declined slightly for both airlines.

For all of 2007, Alaska Air earned $125 million, or $3.09 cents a share, compared with a net loss of $52.6 million, or $1.39 a share, the year before.

The company’s 2006 results included charges tied to replacing its MD-80 aircraft with Boeing 737s and voluntary severance pay awarded as part of new labor contracts. Both periods include accounting adjustments for fuel hedging.

Excluding those items, the company would have posted a profit of $92.3 million, or $2.28 a share, in 2007, compared with income of $137.7 million, or $3.45 a share in 2006.

Information from Associated Press reporter Lauren LaCapra in New York and from Bloomberg News is included in this report.