But to get there, the company needs to cut non-fuel costs at Alaska Airlines to 7.25 cents per available seat mile by 2005 -- about $307 million in cost reductions from its current levels.

Some of that is already under way. The airline has swapped some routes with its smaller sister carrier Horizon Air, to better fit smaller airplanes with less popular destinations. It is encouraging customers to book flights themselves over its Web site instead of relying on airline agents over the telephone. Ayer himself took a 20 percent pay cut this year, and other top executives accepted 15 percent reductions.

But the company also is trying to negotiate about $112 million in wage cuts and work rule changes from five unions -- with more than half coming from the pilots union.

"If you were asked for a 23 percent pay cut your initial reaction would be 'heck no,"' said Tara Elkins, a spokesperson for the Air Line Pilots Association in Seattle. But she said the union's economic advisers are evaluating the initial proposal and have not yet made a recommendation to the union leadership.

The overall airline industry has been struggling to stay in business ever since the terrorist attacks of Sept. 11, 2001, Ayer said. Customers are also choosing airlines almost entirely on ticket price, he added.

With little hope for increasing its revenue, Alaska Airlines needs to drop its costs, Ayer said.

"Nobody has a gun to their head on any of this," Ayer said. "It's just let's open our eyes to the realities, the brutal facts of the industry, our business model that on a 12-month basis isn't profitable, the need to return to profitability in a reasonable amount of time and really make it collaborative and engage people."

Even if it achieves the 7.25-cent goal, Alaska Airlines still would have higher expenses than such low-cost carriers as Southwest Airlines and JetBlue, he said. But Alaska has higher revenue per air seat mile, as well, which can help position it for the profitability and expansion that can benefit employees, shareholders and customers alike, he said.

Alaska also has used the downturn in the industry to expand to new cities, taking advantage of the longer-range capabilities of its newer Boeing 737 jets. It redeployed some planes from West Coast routes to fly cross-country to new cities, including Boston, Washington, D.C., and Miami. Those longer routes have been highly popular, and as Alaska adds new jets, it hopes to increase the frequency of flights, as well as eventually add more cities.

Alaska still faces some major hurdles. The company is the target of a criminal investigation by the U.S. attorney's office in San Francisco in connection with the January 2000 crash of Flight 261 from Puerto Vallarta, Mexico, to Seattle. The National Transportation Safety Board concluded that Alaska Airlines' shoddy maintenance practices were primarily to blame for the crash that killed all 88 people on board.

Families of 87 of the victims have settled civil lawsuits with Alaska, but one case remains to be heard.

And the cost target is a goal, not a sure thing, Ayer said. In addition to negotiating wage and benefit changes, the company still is hoping to identify another $74 million in savings.

"So this is the opportunity," he said. "Here's where we are ... and these are the things we need to do -- the tough decisions that we all need to make."