An alpha image encoding and decoding scheme operable according two different modes is disclosed. In the encoding, an alpha image is decomposed into alpha image blocks (600) comprising image elements (610). The blocks (600) are compressed into block representations (700) according to one of the two compression modes. A block representation (700) comprises a color codeword (720), an intensity codeword (730), an alpha codeword (740) and a sequence (750) of image element associated indices indicative of one of the codewords (730, 740). The compression and decompression mode to use for a block (600) is determined based on the alpha codeword (740). In a high alpha-resolution mode, the index sequence (750) comprises alpha indices selecting one of the quantized alpha values (740A, 740B) of the alpha codeword (740) and intensity indices selecting an intensity modifier from a modifier set represented by the intensity codeword (730). In a high luminance-resolution mode, the index sequence (750) only comprises intensity indices.