Actually that is not a good way to do alpha transparency with PNG file format. That is exactly how it is done with TGA images but for PNG that procedure results in ugly white halos around the image because the transparent parts of the image (which get blended around the edges due to anti-aliasing) become white. For PNG alpha transparency you will want to make the image a new layer, delete the Background layer, add a mask to the image layer, and then paste your alpha channel to the layer mask channel.