Described is a technology by which a raster graphics image file (e.g., a PNG) containing pixels having color component data and alpha channel data (e.g., RGBA data) is transcoded into a smaller Palette Indexed format with non-noticeable and/or virtually no loss. Hextrees are used to represent the pixels of the image, such as one hextree for each subset (segment) of the image's pixels, where alpha channel data distribution may be used to determine each segment. A palette containing sets of alpha and color values is generated from the hextrees, with the transcoded image data provided by representing the pixel data as indexes to the palette.