阿拉斯加航空 (ALK) 2002 Q1 法說會逐字稿

At this time I would like to welcome everyone to the Alaska Air Group first quarter results conference call. I will like to place on to prevent any background noise and after the speakers remarks there will be a question and answer period. If you like to ask a question during this time simply press star then the number one on your telephone keypad and questions will be taken in the orders they are received. If you like to retry your question please press the pound key. Thank you.

Now I would turn the call Over to Bradley D Tilden, Executive Vice President & Chief Financial Officer

Mr. Tilden, you may begin your conference.

Thanks very much Michael. Hello everybody and welcome to the Alaska Group Quarterly Conference Call. Before we get started I would like to mention that we also a number of participants with us. We got John F Kelly, Alaska Air Group, Chairman & Chief Executive Officer, Bill Ayer, The Alaska Airlines, Chief Executive Officer, and Jeff Pinneo, Chief Executive Officer of Horizon Air. We also have with us George Bagley, Executive Vice President In Charge of Operation of Alaska, Terry Martin, Controller of Alaska Air Group, and Rudy Smith, Vice President Finance of Horizon Air.

Before we start we will like to give you a normal reminder that this call may include forward-looking statements and the actual results may differ materially from such statements and you can refer the

for additional information on risk factors affecting our business.

As I am sure you have seen by now we reported the net loss for the quarter 34.4 million dollars, a dollar 30 a share versus a loss of 33.1million dollars or dollar 25 per share last year. Operating revenues of the Air Group level were 497 million dollar, which is down 3.7 percent from last year and operating costs were 548 million dollar, which is down 3 percent from last year. An operating loss of 51.4 million dollar this year versus a loss of 49.5 million dollars last year. Looking at the results by company, Alaska Airlines had a pre-tax loss of 43.9 million dollar, which is 10.2million higher than the 33.7 million dollar loss that we reported last year. Our expenses were essentially even with last years, so it was really caused by a decline in operating revenues of 9.2 million or 2.2 percent. Horizon Air reported a pre-tax loss of 9m dollar, which is substantially better than the 17.1 million dollar loss they experienced in 2001. Horizon's revenue declined by 8.8 million dollar or 8.6 percent, which in

terms is a bit more than Alaska's, but their operating costs declined by 16.2 million dollar or 13.6 percent and this is really what led to the improvement in their results.

At this time I would like to turn over the call to john f. Kelly, our chairman & chief executive officer.

Thanks guys and welcome to all.

from this quarter is really a continuation of what we saw in the fourth quarter except the bill backs of traffic exceeded in our expectation. We executed the strategy to return to a 100 percent of the pre

schedules in both Alaska and Horizon and I think as you know we even begun some modest growth. All that Bill and Jeff talk about these specifics there but the results have been exceptional and virtually all of the new markets have been very gratifying. Both carriers were running very well and helped the cost structure by improving the utilization of assets and the key to all is that the company is continuing to gain market share and that's really where the uptake has come from.

From a traffic standpoint, I believe that Alaska and ATA were the only two major carriers with positive year-over-year growth and traffic for the first quarter and Alaska were fortunate to see it through all three months of the quarter. So that was particularly good. Bill will get into details for amount of the

just like to note that our Washington DC flights operated load factors that exceeded our system average for the month of March and looks as if our new Boston service, which we inaugurated on April 4, should finish the month with the load factor around 70 percent. By the way Alaska and Horizon start service between Denver and Seattle, Portland and Boise on April 28 and our advanced bookings on those markets are very very encouraging too. Also I am going to mention that it is great to see the hard work of our employees recognized once again as Alaska was named the best by a group from

State University of

.

The work our people do particularly in these very difficult times is truly inspiring. Lastly in a worldwide cashes

I am pleased to report that we ended the quarter with a very solid 620 million dollar in cash in short-term investments. So we continued to do very well in that regard also.

Now I would like to turn the call over to our two Airlines Chief Executive Officers Bill and then Jeff. They will take you through the current quarter's results, the outlook for future quarters some of our operational performance statistics and number and anticipated change in our fleets that both in Alaska and Horizon. So let us start with Bill.

Thanks John and hello everybody. We probably all seen the industry data on ASMs,

, Horizon passenger revenue and just as we saw in last quarter Alaska is continuing to do better than our competitors on these measures. You know this quickly go through how our numbers develop through the quarter and the industry comparison, first with the ASM; the industry was up 15.6 percent in January versus that is being down by 4.9 percent. In February, the

was up 13.7 percent on ASMs and that was the month when we brought our schedule back to 100 percent and actually began growing on year-over-year basis. We were up 3.1 percent in February. And then in March the industry was up 9.6 percent, we were up 4.5 percent. So for the quarter industry was up 11.3 percent and Alaska was up 0.9 percent on capacity.

If we look at yield decline, we had a lot less yield decline than rest of the industry. Again in Jan. the industry yield decline was 16.1 percent, we were 3.4 percent in February, 13.6 percent for the industry versus our 6.1 percent. In March we were down 6.7 percent. For Alaska in the quarter the yield was up 5.5 percent. For the Horizon Air, in January, the industry was down 14.3 percent versus our up improvement of 2.2 percent. In February, industry was up 11 percent versus Alaska of 4.3 percent. We were up 6.6 percent in March bringing the quarter to a decline of 3.1 percent for Alaska. And plus most significantly the passenger revenue performance against an industry drop of 27.7 percent in January, we were up 3 percent, 23 percent for the industry. In February Alaska was down 3.2 percent and only up 2.4 percent in March, brings the quarter for Alaska to 2.8 percent decline in revenues.

As we said last quarter we believe there are a number of reasons for Alaska's performance being better than the industry as a whole. Most importantly we think that we gained significant market share due to the preference for our product. Secondly, we have the state of Alaska where air travel is simply a way of life. Third, we have a greater reliance on leisure traffic versus business and of course the business component is what has been hardest hit post

. And finally, many vacationers are choosing destinations closer to home like the state of Alaska, Canada and Mexico, which are viewed as very safe places to visit. So overall our passenger revenues were down 2.2 percent and looking at geographically we saw increases in revenue in some of our more leisure-oriented regions like Nevada, Mexico, and Canada. In the state of Alaska, where travel patterns are more constant our revenues were essentially flat on year-over-year basis. In Southern California we saw about a 5 percent decline in the revenue. In the Bay Area, which has been hard hit by the decline in the technology sector, we saw a 12 percent decline.

As John said that our new markets are doing well. For the month of March, our Washington DC area flights operated at a 71.6 percent load factor and our round trip flights between LA and Cancun operated at 74 percent load factor. Both of the load factor numbers of course were higher than the system average. Make a note that our Cancun service achieved the load factor even after it upgraded equipment to

unit, we did that February 10th. On the addition, that John did not mention is a new round trip between Seattle and Washington Dallas, which will start on June 8th, bringing our Seattle to Washington DC area service to three daily round trips. The

flight, in this new service is a Red-eye and so we have no aircraft ownership class for that segment. In Westbound flight, there is only morning departure, which makes excellent connections

Horizon at Seattle. For the month of February 2002, Alaska and Horizon had a combined airport share in Seattle of 47 percent, which was up 2 points from the previous year and that's very encouraging to see because as you know our strategy is being to grow our presence in Seattle as well some of our other focus areas. The new flights that we added in the new markets are helping us in this regard and the service is starting this month to Boston and Denver who help us even more. I note that our share of 47 percent at Seattle Government is quite a bit lower than what many of the larger airlines had at their hubs and there is really opportunity for further growth was in Seattle.

Looking ahead we feel quite good about the advanced bookings that were seen. April started off fair bid better than last year. But I think that it is fair to say year-over-year comps are softening some now. Easter was in April last year, was in the middle of April and was in March this year. But we still expect that end of the month for the load factor that was close to that of the last years or perhaps slightly higher on a capacity increase of little over 4 percent. We currently anticipates our load factor for May to be close to what we saw in 2001, may be up about a point but again on a healthy capacity increase for about 6 percent from May. So generally we have seen continued strong load factors around Easter, around

weeks, school breaks and so forth and somewhat weaker load factors at other times. I might add that we are implementing a new computer system at the end of the month, which will help us to improve the granularity of our yield management system. Our current system has nine inventory buckets, nine fare class buckets and the new system will have 15. Now we are not anticipating any changes in the price our products but really just have a better ability to control discount seats with this new system.

Looking at freight and mail, our revenues decreased 2.4 million dollar or 13.2 percent versus last year and the decrease is due to lower volumes cost primarily by security restrictions implemented after September 11th. In accordance with the Aviation and Transportation security act, we just recently received relief from some of the restrictions to carry freight and mail within the state of Alaska. So we expect the freight and mail volume to begin to recover for the reminder of the year. Other revenues increased 4.1million dollar or 27.9 percent due to significant growth in the revenue we received from our Mileage Plan Partners.

Turning to the operation, operation went very well during the first quarter and continuing to do so now. Our completion rates were 98 percent or better in January and February and we finished the quarter with the rate of 97.8 percent completion. We fell off a bit in March as we intentionally cancelled some flights in Alaska to make capacity available to fly mail and freight on dedicated

aircraft, which could not be carried on passenger aircraft due to security restrictions. Our percentage of flights arriving within 15 minutes of their scheduled time improved significantly as it had an on time arrival rate of 77.2 percent and that compares to 65.9 percent last year, for an 11.3-point improvement. And so far in April, we are running at 81.8 percent for on time arrivals, which is very close to our goal. Now our relative standing within the industry has not improved much because many of our competitors are also reporting much better on time numbers. We believe this is partly because the airspaces was congested particularly back East with other airlines scheduled reductions and the scheduled reductions are also of

aircraft service operational spares for this airlines. Additionally we were number one in the industry for fewest mishandled

, for the first two months of the quarter that have been reported and that continues the trend that we have seen after the last couple of years. Looking ahead, our growth plans for 2002 have not changed much from what we gave you in the last quarter on this call. Our current estimates of ASM growth for the year remains the same somewhere between 8 and 9 percent, but there are some slight variations. But there are some slight variations by quarter. For the second quarter we are now projecting a 5 percent growth I think that is down from 6.1 percent that we told during the last call. Third quarter looks like 10 percent and that are up I think we said 7 .1 percent and that is up from I think it will project 10 now for the third quarter. In for Q4 we are looking at 18 to19 percent that is down slightly from 20 percent projection that we gave you earlier. Note that our full year growth would be about 3 percent if we adjusted the 2001 baseline for the schedule reductions we made subsequently in September 11. We are still working on our plan for 2003, but our current thoughts that we would like to grow by about 8 percent in 2003.

Looking at the fleet our current delivery schedule will take one 737-900 in October of this year, two 737-700s and two 737-900s in early parts of 2003 and then three

in the early part of 2004. We are looking at number of alternatives in 2003 and 2004 including extending leases on aircraft, which are currently scheduled to be returned to our

and taking delivery of new airplanes from Boeing. All of them accommodate our plan growth will maintaining the flexibility that we need. On the cost side, we are pleased with our progress during the quarter. Total operating expenses were flat compared to last year and on a unit cost basis the cost decreased by about 1 percent. This was helped great deal by fuel prices as fuel costs were 18.8million dollars lower than last year. Ex

, our unit costs increased 4.1 percent, which is lower than the guidance we gave you last quarter, has increased by 7.8 percent and also lower than the guidance we provided in latest

, which showed an increase of 5.9 percent. So at this point I will ask Brad to take you through some of the specific line items.

Thanks very much Bill.

Leases and benefit increased by 12.1 million dollars were 7.8 percent. About one-third of the increase of 4.4 million dollars is due to wage rate increases for various work groups. The remaining increases due to increase in pension, medical, and worker's comp cost. We had 388

employed this year than we did last year, and in fact we had fewer FTEs this year in every major area of the company and was

either other plan or better than our plan and essentially all of our major work groups. Well big thanks to

managers and supervisors who are working very hard to help our manage cost. Looking forward we are estimated in the wages and benefit increases will be roughly 15 percent for the second quarter, 10 percent for the third quarter, and 8 percent for the fourth quarter. These estimate bids higher than what we got in the last quarter and that are primarily due to higher pension cost. Aircraft maintenance cost increased by 5.4 million dollar or about 17 percent as large as

as the company has 8 more outside precheck this year, which contributed

salary increase.

We are going to see an increase in the number cash flow having year-over-year for the rest of the year and will projecting that our maintenance cost increases will be 11 percent in the second quarter, 12 percent in third quarter, and 19 percent in the fourth quarter. Aircraft ramp was down by 3.5 million dollars or about 10 percent because of the fact that we have one left leased aircraft year-over-year and we have lower lease rates on

that we recently extend.

Depreciation standpoint on the other hand was higher but 4.5 million dollars that's about 19 percent as because we have seven more on their plan this year than last. Our travel agent commission declined by 1.5 million dollar or 9.9 percent due to the commission capital that we instituted in November of last year and are continuing shift to direct sales channels. For the quarter travel agency sales are accounted through about 58 percent of our sales versus 61 percent last year. I might notice today we have

to move by much of the industry to illuminate travel agent commission.

We are starting at and we are looking system implications that replaced in the current 5 percent commission with the much more focus than commission plan. We estimate that we are going to change our commission plan; the savings of the air group level would be in the range of 38 to 45 million dollars. Our

in other grounds were 2.2 million dollars or about 10 percent to the higher rate at the airport construction project and the effect of increased security and other costs resulting from the events of September 11. We have been seen substantial increase for the past couple of years and we expect to see the trend to continue. We did have a 2.2 million dollars crew adjustment a favorable adjustment in the first quarter this year due to the year-end assessment from

coming at much lower than we had expected. We obviously expect higher increase in rating season disapproval adjustment had not occurred. Other operating costs were essentially flat compare to last year. We were very happy with our progress in this area. This line item obviously include in insurance, which is increased by 6.9 million dollars over the last year, and that increase was offset by decrease in many of the other more controllable costs such as legal expenses, travel and entertainment cost, recruiting cost, passenger enumerations costs etc.

Here bit more details on our insurance. For Alaska Airlines our costs were 9.3 million dollars this year versus 2.4 million dollars last year, 300% higher year-over-year. Majority almost all of the increases represented by industry standards surcharges for risk insurance. We are working with the other airlines through the Air Transport Association to look at the ways that we might address very significant cost increase. As you may know one of the options that we are considering is a risk retention group that would effectively create an alternative to the private insurance market for our

insurance.

Looking at the non-operating items, interest income is lowered this year than last by about 4.4 million dollars due to lower interest rates and other non-operating net we have a number of unusual items. As we stated our

recently. Fuel hedging gains of 3.1 million dollars of the Air Group level and 2.4 million of that related to Alaska Airlines. Net income is effectively the ineffective portion of our fuel hedge position. Our hedges were 21 percent of the mark-to-market adjustment shows up in this line item.

1.4 million dollars insurance settlement relating to some damage done to one of the air planes by the catering company and 1 million dollar gains from the conversion of our stock in

, which was formally part of Seattle organization.

Looking ahead our projections for unit cost Ex

for the remainder of the year second quarter we are projecting unit cost Ex

of 8.6 cents, which is up 4 percent year-over-year, third quarter will projecting 8.4 cents, which should be flat compare to 2001 and the fourth quarter will projecting 8.6 cents, which is down 11 percent from 2001. For the full year we are anticipating unit cost of 8.6 cents, which is very close to last year's level.

As we done in the past we will continue to update you any changes in these projections

. At this point I would like to turn the call over to Jeff Pinneo.

Thank you Brad and good day everybody.

As Brad had mentioned earlier that Horizon reported pre-tax loss of 9 million dollars, which compares favorably to the loss of 17.1 million dollars last year. Our passenger revenues were 11.9 million dollars lower year-over-year so this improvement is really due to the lower operating cost that were seen as a result of our continuing transition and due to an increase in other revenues, which I will talk bit more about in just a moment.

As I mentioned our passenger revenues were lower by 11.9 million or 12.1 percent were still tend to decline in our business markets and those are largely responsible for the decline in revenue. Because these passengers are typically higher yielding. Their loss has impacted both our traffics and traffic and our yields. We now have express lines to security for

customers and we are working hard to get the word out on this so that our passengers can be confident of the time they are set by flying in this market. Also we are having good success with some of the new markets were flying our

namely

Portland-to-Tusan, Boise-Sacramento, San Francisco, and San Diego and Sacramento to Palm Springs. Looking forward we are projecting a gradual improvement in traffic with year-over-year trans turning positive in the second quarter and also a slowly improving yield trans through the rest of the year. We are obviously somewhat dependent on some continuing improvement in the economy for this to happen. We noted that significant positive change in other net revenues. This is largely due to a 3.1 million dollar credit that we received from Bombardier airport delivery delay. Our costs really improved as a result of being farther long in fleet transition. You can really see this in our maintenance and fuel expenses, our maintenance costs decreased by 12.4 million or 65 percent largely due to the replacement of older aircraft which were nearing retirement with new aircraft which are other warrantees for many of the other items that may need to be repaired.

We are projecting that our maintenance costs may not be as low in the next few quarters as the 6.6 million dollars that we incurred in this quarter, but there should be

8 million dollars per quarter and so will continue to show good year-over-year improvement. Our fuel costs will also helped substantially by the new aircraft as well as significant decrease in fuel prices. On an ASM basis the fleet was 24.9 percent more fuel-efficient this year and fuel prices were 22.9 percent lower. Off setting the savings was 2 million dollars in new low risk insurance and increased security charges of 700,000 dollars, each related to September 11. Putting all these together our operating costs declined 16.2 million dollars or 13.7 percent and on a unit basis our

declined an 11.6 percent or 7.6 percent if we exclude fuel. Looking forward we are forecasting

ex fuel to be 16 cents for the full year, which would be 13 percent lower than 2001 with the following numbers by quarter. Starting with the second quarter 15.8 cents, which would be down 6.4 percent. In Q3, 14.7percent down 15.4 percent and in the fourth quarter 16.2 cents down 21.1 percent. These numbers are on an anticipated capacity growth of approximately 5 percent in second quarter, 19 percent in third quarter and 27 percent in the fourth quarter, while we are comparing to a base period, which has the post

schedule reduction. These numbers should produce full year capacity growth of 12 percent for us. On March 31st, we had 62 aircrafts in our fleet and all but 8 are essentially new generation aircraft. Our fleet now includes twenty-eight 37 seat-200

, fifteen 70 seats Q4-100

, an 11 CRJ

and eight F28

. We now expect to replace these eight F28s by the end of the year at that timing is function of Bombardi airs' delivery of 5 additional CRJs that we are scheduled to receive this year. As you probably hard by now Bombardi air is in the midst of a strike, which began this past Monday at its 3 factories in

. These are the factories that produce CRJs. Our 12th and 13th aircrafts are off the production line and we expect to take the delivery of them as scheduled. But our 14th, 15th and 16th CRJs are either in production or yet to be built and clearly at risk with respect of those deliveries. At this point I will like to turn the call back to Brad, who is going to update you on the balance sheet and capital commitment.

Thanks very much Jeff.

As John said we ended the quarter with a very strong cash position of 620 million dollars. If you recall last quarter we talked about some one-time reductions in our cash balance as we may catch up payments in January for transportation taxes with the government as permitted us deferred during the fourth quarter and as we made some significant front-ended lease payments for Horizon's new aircraft. We adjusted the incremental portions of these two items, our cash flow from operations were positive by about 65 million dollars for the quarter. We are very pleased with that. For 2002, we are projecting CAPEX in the range of 395 million to 425 million that will depend on the possible exercise of aircraft options and that compares to approximately 660 million dollar in 2001. Of the 2002 amount the majority is represented by aircraft deliveries and we received financing commitments with one of those deliveries. Our adjusted debt capitalization and that is adjusted for operating leases is 73 percent as of March 31st, which is the same as it was in December 31st in which we think compares quite favorably to rest of the industry. At this point I will like to turn the call back to John so we can address your questions.

All right operator Michael you would take questions now.

In order to ask a question please star then the number 1 on you telephone keypad.

Your first question comes from the line of Michael Linenberg of Merrill Lynch.

Oh yeah hi umm good morning. A couple of questions here. I guess with respect to the capacity that's coming on later this year, I mean a lot of this

, and you know our capacity was depressed in the later part of 2001 because we have taxed. Should we expect to see other cities, I mean additional cities being added in the Alaska route network this year or in the Horizon route network. There is a lot of that just adding frequency and maybe even connects in the

?

I think we have probably done about what we are going to do for 2002, but I think that the strategy the Seattle strategy is

proving to be quite effective and that means if we look forward, we are planning to continue to look at and evaluate in our new destination possibilities for us.

Okay, and just my second question I guess that the fact your Seattle strategy, the fact that you are moving into some of these markets like Washington Dallas and Washington National airport, where from the

you had really strong success, the bookings were good on Boston and I think you also commented about Denver. What do you think is driving on it and can you talk about the very solid Alaska product. Do you think that some of it has done with maybe the competition that's been in that market historically, maybe passengers deflecting from those carriers?

Yeah, you know we would rather not get into it that. I think the only thing that we can say is that we are trying for the good product out there. We have built up a really great loyal frequent flier base here in this region and up and down the West Coast. We put service in and they have wanted us to do this for years and now they are showing up. I just prefer that to look at it that way.

Okay, thanks.

Your next question comes from the line of Brian Harris - Salomon Smith Barney, Inc.

I was wondering, I had seen in the release, you mentioned the Seattle Horizon business market is being under pressure. Can you comment in general including the main line short-hall versus long-hall and I don't feel kind of curious regarding Seattle and Portland being more in between the big markets in Central California and Seattle as Portland seeing incremental pressure versus Seattle perhaps the California market?

Okay,

Jeff on Seattle. You show in markets.

We are continuing to see a demand pressure on dominant basis in those markets because of our vulnerability to the added time in the airport experience, anything you add to security or otherwise to the total elapse time really competes with alternatives particularly the automobile and other electronic substitutes, so we really feel that in the short-hall Seattle markets, that has resulted in turning our attentions doing what we can to influence the speed through with which people can pass through the airport experience, convenient factors and then communicating as well and we are just completing some very focused research among our business travelers in Seattle-Portland and Seattle-Spokane market to make sure we have got a good fix on the issues so that we can launch out with our product and commercial efforts going forward.

From March standpoint of Alaska we really haven't seen a short-hall impact that is significant. Our research Spokane along with Horizon that he sent that down that has affected us. The like Jeff said the focus really here is on increasing the troop work at the airport in Seattle in particular and the port has been out front with a construction price

to basically double the troop work for summer time and we have couple of other opportunities in some other cities but nothing like that we have in Seattle and when we get to the consistency, what we have in treatment fliers is that they just want to know what the time is and it can't be unreasonable but we need to get some consistencies as well as shorten the time. When you have an experience when you go out one day two hours early and reach through in 10 minutes and you go out two hours early and you miss your flight, it just doesn't work for people. So, this expansion in capacity with at the checkpoint is going to be a big help and we can get both, reasonable time frames and predictable time frames for our customers.

And lastly, you talked about Seattle versus Portland, we put the focus on Seattle, but there are lots of opportunities in Portland. The two carriers combined in the Portland are very large and I think in the future there will be some things fair about, we only have some of the assets and currently we are trying to focus and think on number one, which is obviously got to be Seattle.

how are your relations with TSA, I need

other operational decisions based on a similar approach or other differences?

I think we are working through subsequently a huge transition brand for the whole industry and for the PSA as well and it is a big earning, already we are working through the issues as I come up and I think it is going to be okay. We you know that the working partner here is the cueing passengers and the ability to maintain the express line for our short-hall passengers and for MBP

members and that appears to be okay with the TSA that we do it that way there. You know they run the checkpoint; the securities stuff and they are riding the carriers queue passengers and prioritized if they want to within the queue.

Okay thanks you very much.

Thanks Brian.

Your next question comes from the line

- Credit Suisse First Boston.

Hi guys. Are you being at all affected by American west pricing moves?

We only have a little bit of overlap. Seattle phoenix

and Portland

and there hasn't been anything that has been very dramatic for us on that what I have seen in terms of yield decline. We were been likely

in capacity control based on demand and that equations working out okay.

Great. What about market share gain? Can you shed a little light on that may be

some of those gains are coming from?

Sure. We have seen gains up and down the West Coast in those markets LA to Seattle, we have seen for the Month of March year-over-year we saw about 7 point gain in Market share LA to Portland about 9 points gain, San Francisco to Seattle about 4 points. Those are big numbers and we get excited about half of point

and you get numbers like that is very impressive.

Finally, have any of the TSA initiatives reduced your technology edge in terms of airport check in facilities infrastructure?

No, in fact we are going to see in an opposite way in anchorage. There is terminal construction project underway and we are going to be putting in a

check in process taking advantage of that construction process do it and not even have a formal ticket counter and anchorage, we are going to have much more passenger friendly situation people checking in. Nearly after 09/11/2001, there was a feeling among our customers that they couldn't use the technology. Somehow now the world to change at the point they had to go stand in every line they can find. Do we did some communication about that to say no the

are instant travel machine of all web checking in all of that is still very much available and we did see a little dip in usage of those after 09/11/2001 but that now backup.

Thank you very much.

One thing I would like to point out that discussion in terms of share that nice thing is that, we are able to get that share with reduced frequency and we are able to take those reduced frequencies and to move that equipment into this new market, so we are really getting a double bang you know for the effect of moving on.

Your next question comes from the line from Helane Becker - Buckingham Research Group

Hi, thank you very much operator. Hi gentlemen. Just a couple of questions. One with the

expanding capacity your group has reduced capacity has upward outward pressure on what you are paying for landing fees?

You know I think the

to the airport work

obviously the kind of the net cross of the airport is spread over the growth rate of expected land and so better effect the unit rates of all of us equally so we all are experiencing a little bit higher unit rate as a result of less line subsequently 09/11/2001. Alaska is flying more than our competitors will show increase as remaining fees, just like we show increase as in fuel and wages and benefits and other parts of the P&L.

The facilities and rents are fixed and so we are spreading that over more ASMs, more customers and so it is very helpful from that side.

You don't feel like you are getting a disproportionate share at the landing fees?

I think it has got a lot better in our major airport which has been on the West Coast our census at the recovery is the lots more further and long on the East Coast.

Did you say about your income tax refunds were and have you gotten all your refunds including that carried about for 5 years?

We didn't say what they are. I think our refunds for the year 2001 is 16 million dollars. We have not received it yet but we do expect to receive it in the next week or two in the very near future. In terms of the carry back up five years, we didn't really need that for 2001 because you could carry back two years under the existing legislation, and existing tax law and we were running profitable on 1999 so we had to carry the 2000 losses back to 1999. That five year carry back will be important in 2002, if we have a taxable loss and to project that we will because now we will be able to carry it back five years.

Okay, and then two more questions on your pension you are estimating amount has reached 10 percent and that kind of put you towards the higher end of the range for your peer group. Have you talked about that number at all?

We are actually talking with our actualities right now about whether that's the right number best to use or not.

So if you were going to change it, would it just appear in like your

or would you make an announcement about that?

Well, the way that

works as you wouldn't have the new rate until year-end next year and it would affect our balance sheet disclosures at the end of 2002 and it would affect our costs for 2003. So, I think we would have plenty of time now and then tell everyone about what we might be doing.

Okay great then my last question is with respect to consensus estimate, I know that you don't want to comment on that but as long as

you are so kind to give us so much great information for our models. It looks like if there is a profit comments with the current quarter? Would you kindly clear that?

You know I think that last fiscal I saw a consensus' estimate at 24 cents for the second quarter and I guess I would say that are Crystal

was quite a bit must be on and it has been at other times that our own forecast are not full of profits of the second quarter, it is with a modest loss and then even going out there our forecasters slightly more conservative or what have you then than the first call estimates but will all know a lot more about those estimates as we move forward.

Okay great, thanks very much.

Yeah.

Your next question comes from Peter

- Ragen Mackenzie, Inc.

Hi, good morning gentleman. Is there a couple of house keeping things? First of all could you give us what percent of

network flying will be doing once you get all the new roots up?

It is about seven percent Peter, the new stuff breaking over Boston, Denver and Washington. Alike Cancun about seven percent about 93 percent of our ASMs this year during our traditional nonstop market.

Okay great. Brad could give us an update on were fuel prices are currently in a hedging update and then also along this lines. Are you going to be having that to take a special gain? Do you think in the future for your fuel hedging?

Yeah, certainly we are giving updates. We are currently at about 80 cents a gallon, which I think we talked about another call,

averages in the neighborhood of 70 cents. So we are definitely at a point of the higher than our historical average. I looked today I think about 26 dollars a barrel. That is what is driving that. As we look at our hedge positions, we are 20 percent hedge for next quarter, 40 percent hedge for the second year and 35 percent hedge for the next year. All of those hedges are improved and they are generally in the range of 21dollars and 75 cents just under 23 dollars. So, the hedge positions are in the money in terms when we will take gains and we really depends on how fuel prices moved. At the end of March, we were 14 million dollars in the money with the overall value of the hedge portfolio and I think it is actually down. I think crude oil is down from what was on March 31. It is very difficult to predict what will happen in the P&L result to these hedge positions. I would know that our goal is never to help market with the stuff. It is really to help us try to move that volatility. So, what we did very well about the hedges is working right now and they are doing their job. We know that there will be times when they go the opposite direction.

With the hedging, the part of the hedging effect was taken into account in your fuel and your line item for fuel wasn't it?

Yes. Actually that was very modest. In terms of the hedge positions in those levels that they were asked for the first quarter. It was almost imperceptible.

Some of them was in the fuel line and then rest was as a basically as a basically a special gain?

Yes. Of the 14 million dollars, 3 million was a special gain and operating and the 11 million is really on the balance sheet. It is called the other comprehensive income at the section of equity.

Okay. Could you also give us an update on insurance? I think you might have touched on that. What are the key dates that we need to look at going forward as it relates to what the government is doing now and then also what you are going to have to do as industry to go up to the private sector?

You know that the big thing right now is that the industry across the border will be pretty standard and fixed rates for

insurance since the dollar in quarter of passenger and at the certain rate, I think it is nickel per 100 dollars of whole value are something close to that. What we are really trying to do is to find alternative structures to help us find ways to lower cost and I think, we are pretty helpful to the industry risk retention group is going to create an alternative and some competition for the private markets and hopefully there is some relief of that thing. I don't have a specific date as to when we would we expect that to be in place and begin to help us with the P&L.

When does the Government subsidies start up to roll back?

You know what the government is not subsidizing so much any more. It is really a liability cap. I think any world risk claim and excessive 100 million dollar the government is absorbing the cost above 100 million dollars and this risk retention group would have a vehicle in that for the government to roll up over a number of years that cap and if the risk retention group does not occur, I don't know what the timing will be for the roll back of that.

And then either Brad or Jeff. Could you comment little bit more bombardeo credit and perhaps how we should look at that for the quarter? Do you think it was a fair offset to what cost savings that you might have had, if you have got those aircraft, I think you said it was3.1 million and then also perhaps what kind of credits you have factored either in the year, non operating cost guidance that is going forward or basically have a look at this on a go-forward basis as well?

This is Rudy Smith. About half of the credits were related to what you could say operating activity that in the balance was related to some of the impairment loss that we took last year on the on the F28 write down thinking as whole and a portion of that.

So going forward on the non fuel operating cost guidance that was given, that basically compensates even getting the additional credits or getting those aircraft in? Basically, is there some variability there depending on the timing of the bombardeo aircraft and we think in either case, there is non fuel operating cost guidance so what would be reasonable?

If you would like to answer the question that the manufacturers credits are principally going forward now and principally related to the fact that we are still flying some of the F28 aircraft and as a result of this we need to do certain warranty work, modification work that builds cost and then covered like warranty. So the incremental cost of operating the F28 as oppose to CRJ-700 is covered by the manufacturer.

Okay great.

I will really try to get it back to what it was then. Had we had had this earlier. That is the intention.

Okay great. That is what I was driving out and lastly John or Brad could you just talk about the employment levels in the maintenance area; you talked about some FTE reduction. I am just curious if you could just break up maintenance area, what that looks like on a FTE basis?

Yeah, we will have Brad look at up there.

Bradley D Tilden, Executive Vice President & Chief Financial Officer

We got the tri division numbers. Here we are. Our mechanics are little bit over 1200

.

Let me just clarify this. Correct me if I am wrong. Remember what Brad said. It was FTE is full time equivalence and not the member of people down but that takes into consideration overtime also.

Right now we are at a little bit over 1200 mechanics and 360 management people in the maintenance organization. So that would be 1550 people in total and that is maybe 300 people higher than what it was a couple of years ago.

Yeah that makes sense with the initial that was put in the place last year. Fantastic that is all I have Thank you.

Again I would like to remind everyone. In order to ask a question please press star and then number one on your telephone keypad. Your next question comes from Kevin Murphy of Morgan Stanley Dean Witter & Co.

I guess that the question on our old strategy can you give us some more details on some of these opportunities. What you have been doing as relating to the departure from your prior strategy and what I mean by that is you seen to be going out to the longer whole markets, expanding east of the Mississippi. Is that what we are going to see more?

Well I think we are looking at a number of opportunities and the basic idea here is to strengthen what we do in Seattle, to increase the share at Seattle with Horizon Air and flight in more places that people who live in Seattle can go through that sample. I think we grow over time. What we are going to see is a balance. We are going to add some new cities over time. We are also going to be adding back the frequency that we reduced close to September 11. We are going to be connecting with that. We are going to continue to do what we do on the west coast that 93 percent, 7 percent kind of relationships. I think it's going to hold over time. I think we are going to continue with CSP predominantly on West Coast Airline for doing things that sense of strengthens. The focus, we have particularly on Seattle. The one thing that changed over the years is the fleet. Which does the mission that we never had fleet to do before. So we can now look at least evaluate the possibility of doing various states, transcend various differences. These 737-700s and 900s are just wonderful airplanes fully needing that respect that Boeing airplane and that we hope that the potential about the after

evaluate and we are going to be careful as to how many we do how quickly. But it provides very good foundation for growth throughout the year.

And I guess I would add that from a Horizon prospective, much of the same is true. They have these wonderful new CRJ-700s with significant difference in range, much expanded range and gave them the opportunity to build a long way to Alaska on the west coast primarily but eventually go to cities that would not have perhaps been considered before. Right

That is right and that as an added benefit of allowing us an opportunity to diversify revenue streams, which mitigates our exposure to anyone segment such as the short held business segment, which is recently benefited.

If the market share into the work into that were alluded to be far, what has been the principal driver for the market share, is that the elimination of the

by United or some incremental passenger fall from these new markets? How would you explain that?

People like to fly Alaska airlines that are all I think we can say. I cannot get inside everyone's head and you know why they are making this wish but we made early with the strategy after Sept 11, and said we are going to return to 100 percent by February. We got capacity back quicker than a lot of others did. We didn't lay any employees off, we went out, and I think tried to do good job communicating with our audience out there with that we were coming back and we were continuing fly. We try to make it as easy as possible to get through the lines and people have responded.

You didn't lay anyone out of the office that come back to the things of better labor relation?

People are obviously ecstatic about that you can well imagine but I will say that what is perhaps going to be a little bit surprising is how much that has been noted in the outside world. You can go anywhere without people

. We are able to getting hand

wonderful that is for everyone. There is nothing more important than your employees obviously.

Can you comment on that you think that would be a positive fact on the next round of negotiation?

We put employees firstly transacted and then everyone to created the plans differentiated for us most fundamentally and we will see if that translates into that.

We have been working over the last years to nearly open

with our Lexus. We are trying to establish nearly a model for labor management relations and that is irrespective of that we did in post

. That was the part of the process we had frequent meetings with our labor groups. Obviously you have got to find some way to negotiate a reasonable position on both sides but we just have the utmost respect for them and fully work the other way.

Thank you.

Your next question comes from

- Goldman Sachs & Co.

Good afternoon, congratulations. Question on business traffic, can you give us the essence on just how your closing bookings, your business fairs whether they signed that those travels are coming back during the quarter?

It is little hard to tell because I think we have got a number of business folks that are out of our plans disguising themselves in terms of the current tickets they buy. So we did look at the traditional bucket mix where I think 23 percent of the

buckets right now and that is down a couple of points from what it was a year ago, 39 percent with the top five buckets in the fair hierarchy as 39 percent, versus 45 last year. But we have some separate research for we track our frequent or MPB members and we know that at least with that group they are flying more than those numbers would indicate. But what they are doing is planning ahead and buying Saturday night stay tickets and so forth and buying on fair looking more passengers in many cases. So I try to know the traditional source of this. But the recession is certainly driving the passengers behavior to a large extends that's why worsening

.

Yeah John does that mix showing any signs of improving during the quarter?

We have seen any great idea or measure on that. We look at you see all the year our members on a load factor and revenue and so forth. So, we are certainly less impacted generally then the rest of the carriers out there. We don't have a good weight of measures specific business traffic market by market. Otherwise we did well with the corporate accounts and sales. I guess what we know, this will not be declining any more at that moment. The uptake in the economy, I think is getting the people back. Look at the percentage of F, Y and B is not off is much today as it was you know in the fourth quarter. Yeah, I guess from the standpoint of measuring buckets, yes we are seeing an improvement.

And on the maintenance side, you mentioned that a couple of

because of the checks run? Would we expect next year that number to come down or is it at the higher level right now?

Probably it would be stabilize after 2002,

pretty similar what we are seeing now and that's still driven by the number of checks, which remain fairly constant to where we are.

Thank you.

Thanks a lot.

There are no further question is added this time. Do you have any closing remarks?

We want to thank everyone for participating in the call and will talk to you at the end of Q2. Hopefully with even better news.

This concludes today's conference call. Thank you for participating. You may now disconnect.