Sunday, April 20, 2014
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A bankrupt Northwest: What could travelers expect?
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The notion of bankruptcy has overshadowed Northwest Airlines in recent weeks. In a bankruptcy, travelers might not see much change. But some experts caution against "complacency." (MPR File Photo)
Officials at Eagan-based Northwest Airlines don't often use the word "bankruptcy" in public. But in recent weeks a number of signs have raised the possibility of a Chapter 11 filing. The airline seems to be moving slowly toward its goal of cutting labor costs; a number of financial analysts have issued warnings; the chair of the airline's board of directors has sold most of his Northwest stock. What could be in store for the traveling public if Northwest does file for bankruptcy?

St. Paul, Minn. — Most analysts agree we're not talking about something right around the corner. Joel Denney with Piper Jaffray in Minneapolis says Northwest could keep negotiating with labor groups through the end of the year. "It's going to take some time here," Denney says. "I don't think it's going to be a matter of weeks. We're talking months before you're going to see this play out."

Still, Denney sees a bankruptcy filing as a distinct possibility. Over the past few years, Northwest has lost about $3 billion on its operations, and in coming years has to pay that much into its pension plans. Mechanics have signaled they would rather strike than accept the airline's cost-cutting proposals, and talks with flight attendants have also been difficult.

Northwest declined to comment on the possibility of bankruptcy for MPR, saying in an email that "Northwest does not respond to hypothetical situations." In the latest employee newsletter, CEO Doug Steenland warns workers to help stave off bankruptcy by making sacrifices now. He says bankruptcy could cost many more jobs and "involves great risk" for the airline itself.

But many expect the initial impact on travelers of a Northwest bankruptcy could be very minor.

Ed Perkins, an associate editor at SmarterTravel.com, says the whole point of a Chapter 11 bankruptcy is to keep going while you get your financial house in order. "Normally speaking, if an airline goes into Chapter 11 bankruptcy it will probably continue to operate for at least a year -- and maybe more than that, as in the case of United -- before it actually ever stops flying," Perkins says.

United Airlines has been bankrupt for two and a half years; US Airways declared bankruptcy in September for the second time in two years. Perkins says while travelers have been inconvenienced to a minor extent as the airlines cut back on some routes, by-and-large it has been business-as-usual.

Travelers may even see some benefits from bankruptcy. Analyst Joel Denney says Northwest might need to cut fares to entice travelers wary of booking on a bankrupt carrier. He says a bankrupt airline is also more vulnerable to competitors hoping to move in on its territory. "With bankrupt carriers, as in the case of US Airways, you saw more competition come into their market, which reduced fares," he says.

But just because a bankrupt carrier keeps flying does not mean there is nothing to worry about, says travel industry writer Edward Hasbrouck. "I think people have been lulled into an entirely unwarranted complacency about the possibility of bankruptcy," Hasbrouck says. "Certainly the airlines don't want people to take it seriously because they don't want people to stop being willing to buy tickets on them when they go bankrupt. And they try to gloss it over with terms like 'reorganization.' But the bottom line is, bankrupt is bankrupt."

Hasbrouck says once in Chapter 11, an airline can cease operations with little or no notice. It hasn't happened to a major airline since Pan Am went bust in 1991. But some analysts, including Hasbrouck, believe one of the major U.S. carriers will stop flying in the near future.

Hasbrouck advises against buying tickets on a bankrupt airline if you have other options. Federal law requires airlines to accommodate travelers stranded by the demise of another carrier. But there's fee, and restrictions mean many passengers will still be out of luck. Even that law expires in November.

A total financial collapse is not the only threat to travelers' plans. As CEO Doug Steenland indicated in his message to employees, a bankruptcy judge could speed up and perhaps even increase the cuts Northwest has been seeking from its unions.

For SmarterTravel.com's Ed Perkins, that is where the danger lies. "In the case of Northwest, the single greatest risk as near as I can tell is that as a result of the Chapter 11 filing one or more of the major unions may decide to strike rather than give up some of its financial position," Perkins says. "That of course could cause some real serious operational problems."

Northwest has said it has contingency plans to weather any strike.

There are also contingency plans in place at Minneapolis St. Paul International airport, where Northwest carries more than 80 percent of passengers. The airport has four months of cash reserves on-hand. A spokesman also says the current airport expansion plan can be reconsidered at any point should Northwest's prospects for long-term growth look more questionable.

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