Tax expense turns Alaska Air Group's pretax profit into a $147 million loss

Alaska Air Group made $18 million before taxes from July through September, but $165 million in tax expense, mostly an adjustment tied to its new forecast, turned that into a $147 million loss, according to a quarterly filing the parent of Alaska Airlines and Hawaiian Airlines made public Friday.

The adjustment came from the company's own forecast. During the quarter, it switched from expecting a profit for the year to expecting a loss, mainly because of high fuel prices. Under the accounting rules, that lowered the tax benefit it could count on from losses it had already recorded earlier in the year. It recorded $165 million in income tax expense for the quarter, including a $151 million adjustment tied to the first half.

In its earnings release, the company also gave a figure that leaves the adjustment out. Excluding certain tax impacts and other special items, it earned 36 cents a share, according to its October earnings release. With the adjustment, the same measure shows a loss of 31 cents a share.

A year earlier, the company earned $111 million before taxes and $73 million after. Through September, it has lost $416 million, compared with a $79 million profit at the same point last year.

The filing says high fuel prices were the main reason for the shift. The company paid $3.94 a gallon in the third quarter, up 57% from $2.51 a year earlier, and its fuel bill rose 60% to about $1.2 billion.

More of that increase came from the cost of turning crude into jet fuel than from crude itself. The refining margin, the difference between what crude costs and what the finished fuel sells for, added $478 million to the company's fuel bill, up from $206 million a year earlier. Crude itself rose more slowly, to $652 million from $476 million. The company buys fuel mainly based on West Coast and Singapore jet fuel prices.

Refining margins also widened this year for the diesel and heating fuel that rural Alaska communities buy by barge.

Future fuel costs are "highly sensitive to disruption in crude oil supplies and refineries, which have been significantly impacted by recent geopolitical events," the filing says. The company expects costs to stay elevated and volatile until those disruptions are resolved. It expects fuel to cost $4.65 to $4.85 a gallon this quarter and expects a loss for 2026, with fuel running $1.8 billion over its original plan.

Revenue still grew, rising 14% to $4.3 billion. The airlines carried 1.1% fewer passengers, about 15.7 million, but passengers paid more per mile. The filing credits premium seats added in a retrofit of its Boeing 737s, corporate travel and expanded international service from Seattle. Leisure travel was softer in some markets, including Hawai'i, where heavy rain and tropical storms hurt bookings and travel. Cargo and other revenue rose 13%, mostly because of better terms in an amended contract to fly cargo for Amazon.

Costs grew faster, up 17%, and operating income fell to $82 million from $148 million a year earlier.

The company has already moved to cut costs. After the quarter ended, it announced it was cutting about 200 jobs and spending less on contractors and professional services, which it expects to save about $100 million next year. The job cuts are expected to cost about $11 million this quarter, mostly in severance.