http://seattlepi.nwsource.com/business/196287_alaskaearns22.html Alaska Air Group Inc. earned $79.2 million in net income in the third quarter, making more money than financial analysts projected as traffic increased and it worked to cut costs.=20 The parent of Alaska Airlines and Horizon Air managed to earn $38.5 million more this year than during the same period a year ago, when it had $40.7 million in net income. The Seattle-based carrier typically posts some of its biggest gains of the year in the third quarter because of seasonal and summer traffic, the company says. The third quarter is its only profitable quarter so far this year. Even so, Alaska Air beat the expectations of analysts, who projected the company would earn $1.55 a share last quarter, according to a survey of 11 analysts by Thomson One Analytics, a unit of Thomson Corp.=20 The company actually earned $2.94 a diluted share, though the amount fell to $2.08 after restructuring charges, fee refunds and hedging gains were removed. Alaska has plenty of challenges ahead as the U.S. airline industry continues to struggle. Alaska has made some progress controlling costs, but must continue looking for savings, said Peter Jacobs, an analyst at Ragen MacKenzie, a unit of Wells Fargo Investments. Part of the effort involves reducing labor costs, bringing them closer to those of other major airlines. The company is currently locked in negotiations with its pilots union. Alaska is seeking steep savings in pilot pay and benefits, though it's also hoping to reduce costs through increased productivity, executives said yesterday. One problem is that the airline industry and its pay practices continue to shift, as larger airlines renegotiate pay cuts with employees. Currently, Alaska Air's pay and benefit practices are roughly $125 million above market rates, according to Chief Financial Officer Brad Tilden. Pilots make up roughly $100 million of that amount. If the two sides can't agree by December, they will enter binding arbitration. That agreement to enter binding arbitration should help preserve the company's financial health, Ragen MacKenzie's Jacobs said.=20 Managers are also moving toward a defined contribution retirement plan, as opposed to a defined benefits plan. Alaska Air has been seeking savings in a wide rage of areas. Only last month the company announced it was cutting 900 jobs over the next year. Further complicating the airline's finances, oil prices continue to rise. The cost of a barrel of crude for delivery in December rose above $54 a barrel in trading yesterday. Although Alaska Air has been expanding in recent years, opening routes to Boston, New York and elsewhere, it plans to focus on improving its financial situation before expanding again, executives said in a briefing with analysts yesterday. Overall, investors welcomed the company's financial progress, sending its shares up $1.40 in trading yesterday to close at $24.60. =20 =20 Clay Wardlow | Technical Publications | ADIC <http://www.adic.com/> | Redmond, WA | 425-897-7448 =20