Alaska Airlines 737-800. By Rob Finlayson

Alaska Airlines and Horizon Air parent Alaska Air Group reported third-quarter net income of $77.5 million, down 36.7% from $122.4 million in the year-ago quarter.

“In this quarter, we saw strong demand in all of our regions,” Alaska Air Group chairman and CEO Bill Ayer told reporters and analysts. “Fuel prices were much higher and offset much of our revenue gains. Traffic gains outpaced the 5% capacity growth leading to higher load factors.”

Excluding mark-to-market fuel hedge losses of $84.3 million and fleet transition charges of $2 million, the company reported a record third-quarter net income of $131.1 million, compared to net income of $118.1 million on a similar basis in the third quarter of 2010.

Group operating revenue rose 12.2% to $1.2 billion while expenses increased 23.9% to $1.05 billion, producing an operating profit of $143.2 million, down 34% on the prior-year quarter.

Alaska Airlines’ revenue rose 25.1% to $1.2 billion while expenses increased 27% to $976.4 million, producing an operating profit of $219.7 million, up 17.2% from $187.5 million in the prior-year quarter. Horizon reported operating revenue of $93.2 million, down 48.5% from the year-ago quarter, while expenses decreased 47.5% to $82.9 million, producing an operating profit of $10.3 million, down 55% from $22.9 million in the year-ago quarter.

Alaska mainline flew 6.04 billion RPMs, an 8.2% rise year-over-year, on a 6% rise in capacity to 6.93 billion ASMs, producing a load factor of 87%, up 1.7 points. Its yield rose 5.3% to 14.7 cents as RASM lifted 6.8% to 14.15 cents. CASM ex-fuel was 7.27 cents, down 3.3%.

Alaska Airlines President Brad Tilden said the airline’s decision to redeploy 21 aircraft to more profitable routes has proved successful.

Looking to 2012, Ayers said the company’s plan is to “grow capacity by 5%, taking advantage of the Hawaiian markets and opportunistic growth in markets that competitors have recently pulled out of. For example, we will add regional capacity in the Seattle-Spokane and Seattle-Boise markets in January.”