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Northwest losses more than double in first quarter
by Jeff Horwich, Minnesota Public Radio
April 16, 2003

New earnings numbers from Northwest Airlines show what most people expected: 2003 is starting off as another rough year for the Eagan-based carrier. The war in Iraq and higher fuel prices contributed to a substantial loss in the first quarter. Northwest executives say they believe the drop in air travel may have bottomed-out. But the struggle will continue to trim costs at the airline, including more cuts in both wages and jobs.

Minneapolis, Minn. — With a war, a soft economy, and SARS spreading in Asia, no one thought Northwest would have much good news to share from the past three months. In fact the Eagan-based airline did slightly better than analysts thought it would, but that didn't dilute the overall message.

Northwest reported a $396 million loss for the first quarter of 2003. The loss is more than double what the carrier lost in the first quarter of last year.

Northwest is the nation's fourth-largest airline, and suffered the same problems as the industry as a whole. Pleasure and business travelers starting to fly again after Sept. 11 held back as the U.S. headed into war with Iraq. As the price of oil rose, so did the cost of fuel.

The company is banking on an upswing in air travel with the end of the war.

"I think you can fairly characterize bookings as having bottomed out," Northwest Vice President Tim Griffin told analysts. "We put a sale in the marketplace yesterday, and we did that in the belief that the bookings had firmed, hit bottom, and people were showing a willingness to buy." Northwest is currently in a fierce fare war with Delta, Continental, and other competitors. Northwest has a special sale on flights to Asia. International travel has slumped in general, and bookings across the Pacific are expected to take an extra hit from Severe Acute Respiratory Syndrome, or SARS. The illness has infected more than 3,000 people, mostly in China.

Neal Cramer sees Northwest's problem firsthand at the head of a Minneapolis travel agency. Concerns about security and SARS mean he has been unable to book a group of Chinese officials who are supposed to come to Minnesota for an exchange program.

"Travel within China and from China has been real strong and could be a real bright spot for Northwest, but I think unfortunately with SARS you know it's just going to take time until it's at least under control and people feel more comfortable with that," Cramer said.

Compared to some competitors like Continental, Northwest has substantial cash set aside. This makes bankruptcy less likely. But company officials say even a strong rebound in air travel won't save Northwest from more cost-cutting.

After announcing 4,900 job cuts across the company last month, Northwest approached its mechanics union again this week to propose 1,000 more. The airline is also asking for cuts in vacation and overtime benefits.

Union negotiator Jeff Matthews says mechanics have no plans to agree to the request. "We have a contract in place that we're satisfied with. I don't really know what the process is going to be at this point, what avenues Northwest is going to take. Nobody's quite sure what they're capable of doing next after this."

Northwest CEO Richard Anderson would not comment on talks with the union. Airline analyst Joel Denney says cost cuts will only happen if executives and labor start cooperating.

"The overall environment between labor and management that you're seeing now played out in the press with their press releases about how we don't need to cut costs, yes we do need to cut costs; kind of shows more animostity there. And in that kind of an environment you're not going to get the creative cost-cutting you would need," he said.

Northwest executives are considering cutting management pay 15 to 20 percent. The $1 billion airline bailout working its way through Congress could also require a freeze in executive salaries. Both the bailout and the wage freeze will be steps in the right direction as Northwest tries to become profitable once again.

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