updated 1/26/2006 4:57:10 PM ET 2006-01-26T21:57:10

Alaska Air Group Inc. posted a smaller fourth-quarter loss Thursday as it benefited from increased traffic and fuel price hedging.

For the three months ended Dec. 31, the parent of Alaska Airlines and Horizon Air narrowed its loss to $33 million, or $1.15 per share, from $44.9 million, or $1.66 per share, in the same quarter a year earlier.

Excluding one-time items from hedge accounting adjustments, restructuring and other costs, the Seattle-based company earned $600,000, or 2 cents per share, in the latest quarter.

On average, analysts surveyed by Thomson Financial were looking for Alaska Air to post income of 4 cents per share.

Revenue totaled $730.6 million, an 11 percent jump from $656.3 million a year earlier and above the Wall Street target of $721 million.

In a conference call with analysts, Alaska Air Chief Executive Officer Bill Ayer conceded that the company's push to improve its financial situation had resulted in sacrifices for employees, who have endured layoffs and other cost-cutting, and some inconveniences to passengers. But he said the hardships are beginning to pay off.

"The bottom line is that we're having success and that our customers and our employees will ultimately benefit from this success," Ayer said.

Ayer said the company also was working to fix problems that have resulted in aircraft damage and passenger scares. In the most serious incident, a ramp worker at Seattle-Tacoma International Airport struck an airplane with a baggage-handling vehicle but did not immediately report the incident. The accident caused a crease in the airplane's aluminum skin, which opened up to a 12- by 6-inch gash as the plane reached 26,000 feet, causing the airplane to lose cabin pressure. No one was injured and the plane landed safely.

"I want to say unequivocally that safety is our No. 1 priority," Ayer said.

Ayer also said the company was considering whether to replace its MD-80 passenger jets more quickly than anticipated, because the older airplanes are less fuel-efficient and more expensive to operate. He said no final decision had been made.

The airline's 26 MD-80s have an average age of nearly 14 years, Alaska Air said.

For the fourth quarter, Alaska Airlines' passenger traffic grew 3.2 percent on a 1.9 percent capacity expansion, while overall occupancy added 1 percentage point to 73.9 percent, the company said.

At Horizon Air, quarterly passenger traffic was up 11.1 percent, as capacity grew 8.2 percent. Plane occupancy was 2 percentage points higher at 73.7 percent.

For the full year, Alaska Air Group reported a net loss of $5.9 million or 1 cent per share, on revenue of $2.98 billion. That compares with a loss of $15.3 million or 57 cents per share, on revenue of $2.72 billion, in 2004.

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